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 October 5, 2005 edition
By Steve
Arnold
The Hamilton Spectator
(Oct 5, 2005)
Stelco has 42 days to secure its
future.
That's how long the company has to
reach a restructuring agreement with its creditors before they vote on the plan
Nov. 15.
A draft deal was approved yesterday by
Superior Court Justice James Farley. But it now must be approved by creditors
who have said flatly they will reject the current version. They have the power
to vote down the deal, and if they do, it could force the steelmaker into
liquidation.
Stelco must walk a fine line over the
next six weeks. It must either convince creditors to accept the deal or sweeten
it enough to win them over, without alienating the province, unionized workers
or the company investing $450 million.
Union members at Stelco's critical Lake
Erie plant could strike. The province could insist Stelco's pension deficit be
paid off in five years -- a bill Stelco has said it cannot afford.
And Tricap Management could walk away
from the deal if there are any changes -- costing Stelco more than $10 million
in cancellation fees.
The draft approved yesterday contains
two critical pieces -- a $100 million deal with the province on pension deficit
funding and a $450 million financing package with Tricap Management Inc.
In his hand-written decision released
yesterday afternoon, Farley said the provincial and Tricap plans form a good
base for further negotiations.
"The plan is not up for approval
by me today.
It has been acknowledged that in the
next month there will be considerable discussion and negotiation as to the plan
that will in fact be put to the vote. The present plan may be adjusted to the
extent that in a revised form it is palatable to the creditors," he said.
"I would trust that all stakeholders and Stelco deal with this question in
a positive way."
Stelco president Courtney Pratt echoed
that hope.
"This is a very good move forward.
It gives us a platform to move ahead and try to engage the bondholders,"
he said. "I'm confident that from here we can come to a plan that all can
agree to."
Lawyer Kevin Zych, representing the
bondholders -- the largest group of unsecured creditors -- said he's ready to
negotiate with the company "but unless there are substantial changes in
this plan, it will be defeated."
Stelco's plan, filed with the court
Sept. 20, proposes a down payment of $400 million against the pension shortfall
of $1.3 billion with the balance paid off over 10 years. It would raise $550
million in new notes that can later be converted to common shares. But that
move would wipe out current shareholders.
All of the new stock to be issued would
go to its general unsecured creditors.
Bondholders said in court documents
filed this week the plan is "clearly doomed to fail," arguing it puts
too much into the pension shortfall. They say the proposal for new notes
dilutes the value of the bonds already issued and benefits Tricap alone.
They're concerned Stelco didn't solicit
competitive bids and say Tricap gets too much control over future appointments
to the board of directors.
In his decision, Farley scoffed at the
idea of shopping around for a better refinancing plan now.
"It seems to me that Stelco as an
ongoing enterprise is getting a little shop-worn."
Any new bidders, he added, would need
considerable time for due diligence "and there is no assurance that their
conditions will be any less onerous than those extracted by Tricap."
Time, he concluded, is not on Stelco's
side.
When the company filed for creditor
protection in January 2004, it claimed mounting losses meant it would run out of
cash in months. That crisis was stalled by a spike in steel prices, but prices
have fallen steadily this year as costs have increased.
Lawyer Murray Gold, acting for Stelco's
salaried retirees, praised the draft plan as "a deal that can put the
company on a solid business footing" and said the goal in negotiations
will be to keep bondholders from eroding that in their own interest.
Earlier restructuring plans focused on
protecting bondholders by replacing unsecured debts with secured debt. Critics
said that would leave Stelco vulnerable to another bankruptcy filing in the
steel industry's next downturn.
The Tricap proposal has the backing of
five of the six United Steel Workers locals representing Stelco employees. The
lone holdout is Local 1005, the voice of 3,000 Hilton Works employees in
Hamilton, which said on Monday it opposes the plan because it creates
"enormous risks" for the firm.
sarnold@thespec.com
905-526-3496