Shares of the embattled junior iron ore miner Arrium Ltd (ASX: ARI) have been placed in a trading halt today pending an update on its recapitalisation plan.

In an update to the market this morning, Arrium said it was in discussions with its lenders, comprised of banks and noteholders, following their rejection of a recapitalisation plan involving GSO Capital Partners LP, which is part of private equity giant Blackstone.

Indeed, the share price rebounded nearly 47% on 22 February – the day the recapitalisation plan was announced to investors – taking the shares to just 2.2 cents. That was also their closing price on Friday last week, implying that the shares could take a belting when they do reopen for normal trade.

With the banks having rejected the plan, Arrium is now in a very precarious position whereby it needs to find a solution for its enormous debt problem. The miner had $303.6 million in cash and cash equivalents as at 31 December 2015, but a whopping $2,379.5 million in interest bearing debt.

It also had $155.9 million in operating cash outflows during the half-year period, compared to $92.5 million cash inflows in the prior corresponding period, highlighting the damage that has been inflicted by the low iron ore price environment.

According to various reports from the Fairfax press, Arrium’s creditors are said to be furious with the miner for its lack of consultation. They are therefore unlikely to approve the lifeline from GSO on the basis they would receive just 55 cents in the dollar for their loans.

Australia and New Zealand Banking Group (ASX: ANZ) is one of the banks exposed to the miner’s troubles. The bank was recently forced to raise its provision for bad debts by at least $100 million, in large part due to its loan to Arrium which has expressed its doubts as to whether it can continue as a going concern.

Westpac Banking Corp  (ASX: WBC)National Australia Bank Ltd.  (ASX: NAB) and Commonwealth Bank of Australia  (ASX: CBA) are also said to be part of the banking syndicate.

Unfortunately, shareholders of Arrium will have to wait for the company to make an announcement regarding the matter, but it’s fair to say the situation is pretty bleak for the miner. Although its shares might be trading at just 2.2 cents, down 99% over the last 5 years, this is one for Foolish investors to steer clear of.

Rather than taking an unnecessary risk on Arrium, there are plenty of other great businesses to consider instead. For instance, The Motley Fool's renowned dividend investing guru recently revealed his newest dividend buy recommendation and short list of 3 Best Dividend Buys Now. Which means if you're reading this message right now, you're not on the list to uncover their names before they potentially go gangbusters. Simply click here to learn more about these shares.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.