The Stel Salaried
Pensioners Organization wishes to thank The Hamilton Spectator for permission
to post the following article by Reporter Naomi Powell published in September
21, 2005 edition
By Naomi
Powell
The Hamilton Spectator
(Sep 21, 2005)
The fate of Stelco's restructuring plan
will ride on one, very powerful group of people: the bondholders.
Stelco CEO Courtney acknowledged
yesterday that no plan can go ahead without the approval of the steelmakers'
unsecured creditors, who are collectively owed about $660 million. Since the
bondholders alone are owed about $275 million of that amount, they have the
power to veto any plan.
A bondholder is a person or group who
has purchased Stelco debts from another creditor. They pay a fraction of what's
owed in a gamble that they can get more at a later date.
And so far, they are not impressed.
"The bondholders so far are not
supporting this," Pratt said. "So the next big step is to work with
them to bring them onside. There is still one very important piece to find
before this puzzle is completed."
The deal released yesterday would see
shares cancelled and new ones issued -- 100 per cent of which would go to the
unsecured creditors. While the bondholders make up the largest group of
unsecured creditors, it also includes tradespeople and others who've yet to be
paid.
The plan would see unsecured creditors
receive $225 million in secured convertible notes, which are basically IOUs
secured to the company's assets. An additional $300 million has been offered in
the form of unsecured notes which can be converted to shares.
"The bondholders aren't getting
much out of this deal," said Bruce Leonard, president of the Insolvency
Institute of Canada. "No cash, anyway. They're mostly getting ownership in
the company and these are not people who are interested in that. Stelco will
have to do something significant to get their vote."
Bondholders can vote no and force the
company into liquidation. They could earn more on a sell-off. But they also
risk losing everything.
Representatives for the bondholders did
not speak in court yesterday. Their lawyer, Richard Orzy, was not available for
comment.
From the beginning, the senior
bondholders have been one of the most powerful and mysterious stakeholders in
Stelco's ongoing restructuring story. They are not obliged to identify
themselves publicly and are often represented by a trustee or legal
representative. The identities of those who own Stelco's bonds (and therefore
hold significant power over its future) are largely unknown.
Union leaders have consistently cast
the bondholders as "New York financial speculators" or vulture
capitalists whose true interest is in the size of their wallets, not the
well-being of the company. Vulture capitalists are investors who buy bonds at a
discounted rate when a company is in trouble or about to go into bankruptcy
protection. Often these bonds are bought from smaller players who are nervous
about the company's situation and want to get their money out.
The bondholders then use their
substantial power in the restructuring process to increase the value of the
bond.
"They're called vulture
capitalists because they profit off of other people's misery," said
Richard McLaren, a business professor specializing in insolvency at the
University of Western Ontario. "There's truth in that. But they have a
role to play in the overall economic system. They give the nervous Nellies and
the small players a way out."
Stelco's unions, which have focused on
the company's $1.3 billion pension deficit, have argued that the steelmaker
should take care of its pension first. They say the bondholders should be paid
out in Stelco shares, the least secure form of debt. For the past 20 months,
the face of Stelco's bondholders has been Orzy, a partner at Toronto law firm
Bennett Jones LLP. While refusing to identify his clients, Orzy told The
Spectator that those who buy bonds are often pension funds, insurance
companies, and university endowment funds, not just "speculators."
npowell@thespec.com
905-526-4620