The Stel Salaried
Pensioners Organization wishes to thank The Hamilton Spectator for permission
to post the following article by Reporter Steve Arnold published in the April
14, 2005 edition
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Apr. 14, 2005. 12:53 AM |
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Stelco rejects $1.3B offer |
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Refinancing bid from Brascan, steelworkers 'dead
from the start' |
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By Steve Arnold |
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A union-backed $1.3 billion refinancing plan for Stelco has been flatly rejected by the company. In a flurry of activity last night, leaders of the United Steelworkers of America announced they had signed a letter of intent with Brascan Corp. to bring Stelco out of bankruptcy protection with enough money to solve its critical problems. Barely three hours later, Stelco's chief restructuring officer Hap Stephen pronounced the union plan dead on arrival. "This is not a proposal that will work. It is not a proposal we can accept or even deal with," Stephen told a hastily called news conference. "It's really dead from the start." The tentative proposal by the steelworkers and Tricap Management Ltd., Brascan's restructuring fund, marks another twist in Stelco's journey through court-supervised restructuring. It has seen the company solicit bids to buy or refinance its operations and then reject those offers in favour of a company-driven refinancing through the capital markets. Stelco needs money to cover pension shortfalls of $879 million, to cover a health benefits plan deficit of $1.35 billion, to pay for capital work needed to stay competitive, to refinance its debtload and to give it a cash cushion against future declines in steel prices. The plan covered most of those issues, offering: * a $600-million revolving line of credit; * a $350-million term loan; * a commitment to underwrite $400 million of equity-linked securities for existing stakeholders; * unsecured creditors would have their claims paid with new equity in a recapitalized Stelco. The money would be used for: * $500 million immediately for Stelco's pension plans; * $100 million to repay Stelco existing secured debts; and * $750 million for capital spending. Union leader Bill Ferguson, president of the USWA local at Stelco's Lake Erie plant, called the proposal a viable way of saving Stelco and promised the union will go to court as soon as possible to ask that Stelco be compelled to consider it. He was also puzzled by the company's quick rejection. "I can't understand why they would see this as anything other than good," he said. "We've brought forward a viable position here. We're recommending a financial institution that's willing to give a lot of money to Stelco." For Ferguson, the critical part of the proposal is its promise to pump money into the pension plans. When Stelco filed for bankruptcy protection in January 2004, it said the cost of funding its pension shortfalls was crippling its ability to compete. "If someone is willing to put $500 million into the pension plan and make it a manageable issue, wouldn't that put Stelco on a good sound footing?" Ferguson asked. "Is Stelco saying making sure that Bay Street gets its cut is more important than taking care of the older people in our community?" Stephen, however, dismissed the Tricap proposal as designed to meet only the concerns of the union and pensioners while failing other stakeholders. He also said it "lacked clarity" because the proposal was subject to a due diligence process. "The bondholders have said they are not prepared in any way to support this. It will not succeed without the approval of the creditor group," he said. "We will be coming forward with a plan that deals with the concerns of all stakeholders, not just one group." Tricap, he added, was invited to make an offer for Stelco during the company's first restructuring plan, "but effectively refused. "For them to just pop up now is a bit inappropriate," Stephen said, adding a court hearing could harm the company-driven restructuring plan. "We just don't believe this kind of initiative is helpful," he said. Tricap was created in 2001 by Brascan Corporation and is backed by institutional investors including the Canada Pension Plan Investment Board. It provides, according to Brascan's Internet site "a source of patient, long-term capital and strategic assistance to companies experiencing financial or operational difficulty." Cyrus Madon, Tricap's managing partner, said the fund has been interested in Stelco. It meets the firm's goals of investing in tangible firms with good histories experiencing short-term problems because of cyclical downturns "or an over-stretched balance sheet." sarnold@thespec.com 905-526-3496 |