The Stel Salaried
Pensioners Organization wishes to thank The Hamilton Spectator for permission
to post the following article by Reporter Tara Perkins published in the October
22, 2005 edition
By Tara
Perkins
The Canadian Press
TORONTO (Oct 22, 2005)
Stelco bondholders alleged yesterday an
Ontario judge overstepped legal bounds by approving financing deals that the
steelmaker hopes will pull it out of bankruptcy protection.
After 20 months of bankruptcy protection,
governed by the Companies' Creditors Arrangement Act, Stelco recently
negotiated deals with the Ontario government and Tricap Management Ltd. which
will provide it with $550 million in new financing.
Stelco CEO Courtney Pratt has said the
deals will provide the money Stelco needs to emerge from court protection, and
the company's restructuring plan "represents the greatest opportunity to
preserve the interests of our Hamilton employees and retirees."
The Hamilton-based company has more
than 7,000 employees and more than 10,000 retirees.
In documents filed with the Ontario
Court of Appeal, the bondholders -- predominantly U.S. hedge funds -- say
Ontario Superior Court Justice James Farley "exceeded any jurisdiction
vested in him as a CCAA judge" when he approved the two financing deals
that form the basis of Stelco's restructuring plan. The plan proposes to pay
the bondholders' claims in notes and shares rather than cash.
The bondholders are scheduled to appear
in the appeal court Nov. 2, while a vote on Stelco's restructuring plan is
scheduled for Nov. 15.
The plan requires approval from
creditors holding two-thirds of the dollar value of affected claims, which are
expected to total $640 million.
In yesterday's documents, the
bondholders noted that they are Stelco's largest creditor obligation and so
Stelco's plan "is doomed to fail" without their support.
Under Stelco's plan, the province of
Ontario, the Pittsburgh-based arm of the International Steelworkers union, and
Tricap each improve their position, the bondholders said.
The province's deal, which provides
Stelco with a $100-million loan, requires the company to pay off its
$1.3-billion pension solvency deficit over a decade. The deal decreases the
amount the government would be on the hook for if Stelco wound up, the
bondholders say.
The Tricap deal includes break fees of
up to $10.75 million, if the deal is rejected or amended without Tricap's
consent. By approving that deal, Farley has allowed Stelco to "waste
millions of dollars in payments," the bondholders said, because he
"acknowledged that there was virtually no chance that the proposed plan
will be accepted in its current form and that it might not be acceptable at
all," the bondholders said.
"Rather than give effect to the
business judgment and the clear wishes of the majority of affected creditors,
Justice Farley discarded it and substituted his own judgment," the court
documents said. "This is unprecedented."
Alex Morrison of Ernst & Young, the
court-appointed monitor overseeing Stelco's proceedings, said last week that if
Stelco's plan doesn't go through, the most likely alternative is a liquidation
sale of the steelmaker's assets.
While the plan could see creditors
recover about 66 per cent of their money, a liquidation would likely result in
recovery between 17 per cent and 33 per cent.
Stelco executives have said they hope
to negotiate, and if required make changes to the plan to appease the
bondholders before the creditor vote.