The Stel Salaried
Pensioners Organization wishes to thank The Hamilton Spectator for permission
to post the following article published in the July 16, 2005 edition
The Hamilton
Spectator
(Jul 16, 2005)
Stelco has tabled a plan to pay off its
crushing pension deficit over 10 years without asking workers, creditors or
retirees for concessions.
The long-awaited restructuring plan
provides the first solid glimpse into the future Stelco sees for itself.
It was unveiled yesterday in what
company president Courtney Pratt called a "critical step" in Stelco's
18-month-long ordeal under bankruptcy protection.
"This is obviously a pretty
important event. This is a critical step in moving this process toward a
resolution," he told reporters.
While the plan proposes no cuts to
current wage or pension payments, it offers a downpayment on the pension
deficit of only $200 million, and half of that depends on how much the company
raises by selling subsidiaries such as the Stelwire plants in Hamilton and
Burlington.
It will also reduce current
shareholders to owning less than 2 per cent of the company.
Pratt told a media conference call the
plan is an effort to balance the demands of several different groups -- no
group gets everything it wants, but no group is asked to carry the entire
burden of restructuring the troubled steelmaker.
"There's not enough value in
Stelco to meet all the demands of all the stakeholders," he said.
"It's critical for us to find a middle ground that everyone can support
and that's what we've tried to do."
The plan is to go to Stelco's
stakeholder groups next week for meetings the company hopes will gain their
endorsement. In order to be approved, creditors must vote in support of the
plan. While the union doesn't have a vote on the plan, several of its
collective agreements are up for negotiation, raising the prospect of strikes
if they're unhappy with the deal.
"It couldn't possibly please
everybody," said Bruce Leonard, president of the Insolvency Institute of
Canada.
"I think this plan is doable
though. The cash projections are reasonable and the financing can happen. The
big question is if the stakeholders will go for it."
Pratt said there's room for some
changes in the plan, so long as its overall balance isn't changed.
"This could be tweaked in a way
that balances the interests of all stakeholders," he said. "We will
listen to suggestions that lead to improvements in the plan, but we're not
interested in hearing suggestions that take something from one stakeholder to
put it in someone else's pocket."
Stelco's plan seeks to refinance
existing debt of up to $666 million by issuing new bonds, $190 million by
selling the right to buy new shares in the company and $175 million by selling
off non-core operations like Stelwire. These would be coupled with lines of
credit totalling $700 million secured by Stelco's assets.
In addition, 11 million shares of new
stock would be issued, with 10 million of those being used to reduce debt. As
much as $300 million of that debt could later be converted to shares if the
provincial government agrees to let the pension deficit be settled over 10
years at $98 million a year. Current policy requires that such debts be paid in
five years.
With that money, the company proposes
to pay off its existing debts, settle $665 million owed to unsecured creditors
by converting part of the obligations to shares and the rest to new debt, make
a downpayment on the pension deficit and fund $425 million in plant and
equipment upgrades.
Stelco filed for protection under the
Companies Creditors Arrangements Act in January 2004, saying it needed
immediate cost cuts or it would run out of cash. Within weeks of that filing,
however, world steel prices soared and the company has reported profits since.
Prices for hot rolled steel, Stelco's largest product category, peaked at $975
a ton in September and have since sagged to around $500.
With prices slipping, Pratt said,
Stelco must act quickly to reshape itself.
"The booming markets we were
talking about six months ago have really turned around," he said.
"The markets are soft now and it is very critical for us to bring this to
an end for everybody's benefit."
Stelco's plan could see the company
leave bankruptcy protection by the end of September.
On the Toronto Stock Exchange,
investors reacted to the proposal with a gasp.
Stelco shares that had been trading as
high as $1.05 plunged to 45 cents when the news was released. They later
recovered to close at 78 cents, off seven cents on the day.
Union leader Bill Ferguson was
generally cool to the plan. The United Steelworkers continue to back a proposal
by Brascan Corp. which offers a $500 million downpayment to the pension plan
but promised to study it in detail over the weekend.
The union plans to present a motion in
court on Monday asking that it be allowed to table a restructuring plan of its
own, based on the Brascan proposal which already has the public support of
retirees, salaried workers and the provincial government's special adviser on
the steel industry. At the same hearing, Stelco will ask that its current
protection order be extended to Sept. 9.
Rolf Gerstenberger, president of Local
1005 which represents employees at the Hilton Works complex in Hamilton, said,
"we're looking at it closely, but our initial gut reaction is it's more of
the same old fraud."
Local 1005 has consistently refused to
take part in Stelco's restructuring effort, demanding the company live by the
terms of its current collective agreement.
Spokesmen for the company's active and
retired salaried workers could not be reached and a lawyer for the bondholders
committee declined comment.