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 24, 2005 edition
By Steve
Arnold
The Hamilton Spectator
(Oct 24, 2005)
Supporters of Stelco's controversial
restructuring plan are rejecting a warning it could leave the company
vulnerable to future financial trouble.
In a recent industry newsletter, New
York-based analyst Mike Locker warned the refinancing plan Stelco is trying to
get its creditors to approve will leave it with more than $1.2 billion in debt
and a cost disadvantage of up to $50 US per ton compared to competitors.
"With the recent announcement of a
restructuring plan, there finally appears to be a light at the end of the
seemingly infinite Stelco bankruptcy tunnel," Locker wrote. "However,
it remains unclear that the newly proposed plan provides the long-term fix that
Stelco and its employees will need to weather the next down cycle."
Specifically, Locker worries the
interest payments on Stelco's restructured debt and the annual contributions of
up to $70 million to pay down the pension deficit would be more than the
company's cash flow could handle.
"Given Stelco's continued cost
disadvantage and the substantial debt load, it is unlikely that the mill will
be able to survive the next downturn without another visit to (bankruptcy
protection)," he wrote.
Locker was an adviser to the union
during an earlier Stelco financing round, but the relationship ended over what
union leader Bill Ferguson calls "irreconcilable differences" over
how pension and retirement benefits should be handled in restructuring.
Now, Ferguson said, Locker is echoing
company arguments from the start of the restructuring -- that the cost of
pensions and health benefits for retirees were driving it out of business.
Those arguments weren't true then and still aren't.
"He's saying that the cost of
post-retirement benefits will cause the company to have extreme debt,"
Ferguson said. "That's why we severed our relationship, over those kinds
of irreconcilable differences."
Union leader Scott Duvall also sees
weaknesses in Locker's position.
"I don't think he really understands
the full plan, that we're all going to restructure," he said. "I
don't think he really knows what's in the actual agreements.
"I don't understand why he's
saying any deal without concessions puts Stelco at a disadvantage. If we make
the right changes in the restructuring, there's no need for us to take
concessions because the company can get what it needs through
productivity."
Lawyer
Murray Gold, who represents Stelco's salaried retirees, said Locker's analysis
misses the critical point that much of the new debt the company will take on
under its restructuring plan can be paid off with shares rather than cash.
"There
are some very good protections for the company built into this plan," Gold
said. "A lot of the debt can be converted or the interest can be paid in
shares. That will save a lot of cash for the company."
Under the Stelco plan, to be financed
with money from Tricap Management Inc. and the provincial government, the
company will take on $950 million in revolving lines of credit and issue $550
million in notes which can be converted to common shares. Tricap will also
underwrite a $75-million rights offering with the option of buying another $25
million worth. A $100-million note would be issued to the province in exchange
for its $100-million loan toward a pension deficit down payment.
sarnold@thespec.com
905-526-3496