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
November 5, 2005 edition
By NAOMI
POWELL
The Hamilton Spectator
(Nov 5, 2005)
The Ontario Court of Appeals has
dismissed a legal bid by Stelco's bondholders to have a pair of crucial
refinancing deals scrapped.
The dismissal sets the stage for
another round of intense negotiations as the bondholders attempt to wrangle a
better deal out of the steelmaker.
Analysts say the bondholders could have
more legal manoeuvres in store before the company holds a creditors vote on the
plan Nov. 15.
The bondholders had asked the Ontario
Court of Appeals to overturn Justice James Farley's approval of a $100-million
provincial loan and a $450-million financing deal with Tricap Management, which
carries a cash penalty of more than $5 million if the deal is defeated. The
deals are the backbone of the company's strategy to pull itself out of 20
months of bankruptcy protection.
The bondholders claimed the approvals
skewed the bankruptcy protection process and that the heavy Tricap penalty
would unfairly coerce creditors to vote for the plan rather than risk company
money.
In his written decision, Justice Marc
Rosenberg said Farley's decision did not usurp the rights of creditors, who can
still defeat the plan through the vote. Rosenberg also noted the importance of
keeping the process on track.
"(T)he urgency of the situation
cannot be underestimated," he wrote. "Something will have to happen
to either break the impasse or terminate the (restructuring) process."
Richard Orzy, a lawyer for the
bondholders, reacted to the decision by reiterating his clients' intention to
veto the plan.
"All that will happen is we'll
have wasted a month and a half (dealing with the plan). There will have to be
very substantial changes to the plan as it stands now for it to be
approved."
As Stelco's single largest creditor
group, controlling about $275 million in debt, the bondholders wield enough
power to kill any deal.
Although Stelco CEO Courtney Pratt said
he is still talking with the bondholders in hopes of winning them over in time
for the vote, Orzy told The Spectator that "nobody has actively engaged us
in any meaningful negotiations so far."
Pratt has said if the plan is voted
down, it could still be saved in last minute negotiations. He points to the
restructuring of Algoma Steel, where a plan was voted down and then saved in
court-ordered negotiations two days later.
But the atmosphere of crisis created by
a "no" vote may not be enough to close a deal with Stelco's
bondholders, said Bruce Leonard, chair of the Insolvency Institute of Canada.
After all, intense negotiations in July
under respected mediator George Adams were a failure.
"And Algoma was an exception, not
a rule," Leonard added. "In my opinion, Stelco is a much harder nut
to crack."
If Stelco really wants to win the
bondholders' support for the plan, it will need to come up with cash, Leonard
says. The current restructuring plan offers bondholders a return of 66 cents on
every dollar of their debt. But most of that compensation is in the form of
shares.
"They want cash," he said.
"The bondholders may think Courtney has more money that he can free up.
And if he doesn't he may have to look somewhere else for help."
The bondholders will likely engage in
more legal action designed to delay the process until a satisfactory deal is
produced, Leonard predicted.
"They could kill the deal through
procedural delays until they get the money they want," he said.
If the company doesn't have the
necessary cash, Leonard says the provincial or federal government may be
pressured to come up with more money. Hamilton East-Stoney Creek MP Tony Valeri
has noted Ottawa got involved in the restructuring of Algoma Steel and could do
the same for Stelco.
But Leonard said the provincial
government may be a more likely donor because it will be on the hook for
Stelco's $1.3-billion pension shortfall if those pensions are wound up.
"The province has the most to lose
and the province will ultimately solve the problem," he said.
"Besides, if the federal government gives money to Stelco, what about all
the other companies who have lined up?"
On Monday, city officials are hoping
1,000 people will attend a noon -hour rally at City Hall to show support for
the embattled steelmaker. In a rare show of solidarity, union leaders, retirees
and company brass are expected to share the stage.
npowell@thespec.com
905-526-4620