The Stel Salaried
Pensioners Organization wishes to thank The Hamilton Spectator for permission
to post the following article by Reporter Naomi Powell published in the
September 21, 2005 edition
By Naomi
Powell
The Hamilton Spectator
(Sep 21, 2005)
Stelco and its unions have reached a
landmark deal that could save the steelmaker.
It was a $100-million bailout by the
province that united the warring sides for the first time since the steelmaker
announced it was seeking bankruptcy protection in January 2004.
The plan, reached in negotiations that
went into the early hours yesterday, would see Stelco emerge from nearly two
years of bankruptcy protection by Dec. 31.
"It took someone to take the first
step and the provincial government took the first step," Stelco CEO
Courtney Pratt said of the $100-million payment on the company's pension
deficit. "They unblocked this whole process with what they put on the
table and that led to a lot of other movement."
The deal is being touted as a massive
step forward for a union and faltering company that have been bitterly opposed
over how the company should restructure.
"We've got a restructuring plan
that is a strong platform for Stelco and the pension plan," said Finance
Minister Greg Sorbara. "Stelco is an important economic player in
Hamilton, in Ontario and in Canada."
Deal at a glance
* No concessions in wages, pensions or
benefits from workers, no job cuts;
* Existing shares would be wiped out
and Stelco would issue new shares, to be owned 100 per cent by its creditors;
* Province injects a $100-million, 1
per cent loan into Stelco's $1.3-billion pension deficit (loan may be forgiven
if Stelco clears the debt within 10 years);
* Stelco agrees to double its upfront
pension contribution to $400 million;
* Stelco will contribute $60 million to
the pension each year until 2010 and $70 million annually until 2015;
* The plan would give Stelco $630
million in cash when it emerges from bankruptcy protection;
* Secured creditors would receive full
payment in stock and equity-backed notes that can later be converted to shares;
* The level of recovery for unsecured
creditors "cannot be determined at this time."
The province's offer hinges on:
* Tricap Management Limited providing
up to $450 million in new financing;
* Stelco reaching deals with its locals
at Lake Erie and AltaSteel by tomorrow morning.
The public interest is a viable steel
company and a well-financed pension plan.
The plan has been endorsed by all major
players, except for Stelco's unsecured creditors -- the bondholders,
tradespeople and others who have yet to be paid. The creditors' support is
crucial because they have the power to veto any plan.
Even Local 1005 greeted the deal with
enthusiasm.
To cement their agreement with the
province, Stelco will spend today negotiating collective agreements with the
union locals representing Stelco's Lake Erie and AltaSteel operations.
They will also have to firm up a $450-million
refinancing offer from Brascan-backed Tricap Management -- which had previously
worked with the United Steelworkers to come up with a plan. If Stelco fails to
meet either of these requirements or to win the support of the unsecured
creditors, the deal could fall through. That would force the steelmaker back to
the drawing board.
"The people who vote on this are
the bondholders and so far they are not supporting this," Pratt
acknowledged yesterday. "So the next big step is to work with them to bring
them onside."
The bondholders declined to comment
yesterday.
The proposed plan would see the company
make an immediate $400-million payment into Stelco's $1.3-billion pension
deficit, a stumbling block to negotiations since the company entered creditor
protection in January 2004. This issue, always fundamental for the unions, had
derailed talks and driven a wedge between the company and its workers.
"We were pushing for more of a
downpayment on the pension (and) that's there," said Bill Ferguson, president
of the United Steelworkers of America Local representing Lake Erie workers.
If the company manages to erase the
entire debt by 2015, $75 million of the province's loan will be forgiven.
Federal Liberal house leader Tony
Valeri said it was "only appropriate for the provincial government to be
making that contribution."
Shareholders would take a hard hit
under the plan, with Stelco proposing to wipe out all existing stock. The
company would then issue new stock which it would give as compensation to its unsecured
creditors. But that may not be enough to win over the creditors, who would
receive some secured notes (essentially IOUs on assets) but no cash under the
deal.
"The creditors do not do well out
of this," said Leonard. "They receive no cash and much of what they
are offered is ownership in the company. Bondholders, particularly, are not
interested in owning pieces of a company. They buy and sell debt and what they
want is real money."
But after months of deadlocked
negotiations, there may be enough pressure on the company's creditors to vote
the plan through, said John Varley, a lawyer for Stelco's salaried pensioners.
"The bondholders will have to
decide whether they want to be the ones to do something so damaging to
Stelco," he said. "They'll have to decide whether they will stand up
and do that to the company and to Hamilton."
Mayor Larry Di Ianni, who offered to
help forge an agreement between stakeholders in July, was also cautiously
optimistic.
"With bated breath, I'm following
this," he said. "It's very hopeful."
In the Toronto courtroom where Stelco
announced its plan yesterday, Justice James Farley congratulated the players
for "moving mountains," but reminded them that their work was not yet
done. Stelco hopes to have the deal finalized in time for a formal vote by
creditors on Nov. 1.
"From where you were five weeks
ago it's night and day," Farley said. "But it's not over."
npowell@thespec.com
905-526-462
With files from Spectator staff