The Stel Salaried Pensioners Organization wishes to
thank The Hamilton Spectator for permission to post the following article by
Reporter Joan Walters, published in the November 9, 2005 edition
By Joan
Walters
The Hamilton Spectator
(Nov 9, 2005)
Steelworkers' president Leo Gerard
calls them pickpockets in Gucci shoes.
They are often viewed as a secretive
band of well-heeled raiders with too much control over a company's future.
They are the Stelco bondholders, the
money managers, hedge funds, pension plans, insurance companies and other
institutions who together form the steelmaker's largest creditor group.
Just now, they hold all the cards and
they plan to vote no next week on Stelco's $550-million restructuring deal. A
refusal to accept the rescue package means Stelco could still collapse.
"We need to tell the Gucci-shoed,
cafe-latte drinking, pocket-picking, pension- robbing, coupon-clipping,
money-grubbing bastards that it ain't gonna happen on our watch," Gerard
told a Stelco rally this week.
But the international union leader was
way over the top, says lawyer Marlin Horst, an insolvency expert at Chaitons
LLP in Toronto.
"It's so wrong," Horst said.
"They're not some kind of evil, secret society, they're more like the
banks. They've lent money to the company and consequently, they have a right to
some say over what happens."
The names of all Stelco bondholders are
not known. Some have changed over the 21 months of receivership, and many are
represented only by money managers, who invest for them. Even so, names of some
of the lead companies in the group have become public.
All declined to comment for this story.
* Sandell Asset Management, New York
City, founded by Thomas Sandell in 1998 after he had forged a reputation on
Wall Street in arbitrage, the high adrenaline practice where a stock is
purchased in a market where the price is low and instantly sold in another
where the price is higher. Schooled in business in Sweden before taking his MBA
at Columbia Business School, Sandell was once ranked as Sweden's No. 2
badminton player.
* Longacre Management LLC, New York
City, a $1-billion hedge fund specializing in distressed securities including
trade claims, accounts receivable, corporate bank loans, private insurance
notes, and corporate bonds. It focuses on bankruptcy reorganizations and
liquidations. The fund was started by three young turks who worked together on
Wall Street.
* Owl Creek Asset Management LP, New
York City, whose managing partner, Jeffrey A. Altman, rose to the top of
Franklin Mutual Series Fund Inc., with assets of $20 billion, before founding
his own company. Owl Creek specializes in distressed securities.
* Wexford Capital LLC, Greenwich,
Conn., with more than $4 billion under management, provides capital to bankrupt
or distressed companies. Joseph M. Jacobs, 52, is a Harvard MBA who left a
senior job on Wall Street to co-found Wexford in 1994.
These firms have been involved in the
bondholders' attempts to have the restructuring plan overturned in court.
To pass, the Stelco plan requires
approval from those holding at least two-thirds of the money owed, estimated at
$640 million. Bondholders, who would get about 66 cents on the dollar, control
about $275 million, enough to kill any deal. The plan features $450 million in
financing from Tricap Management and a $100-million Ontario government loan.
Richard Orzy, lawyer for the
bondholders, disputes the image of his clients as heartless. "Where do you
think the money comes from to invest in these bonds?" he asks. "The
bottom line is, the people whose interests are represented in those monies are
no less worthy or sympathetic (than anyone else)."
A large number of bondholders are
insurers, mutual funds and pension plans that bought long-term bonds in good
faith when Stelco was solid. Bonds are fixed income securities that companies
sell to raise money, at lower interest than a bank would charge.
Bondholders are the ones who took the
risk, and now have a right to want the best payback, according to experts.
"What the employees are looking
for, naturally, is for a company to keep going," Horst said. "What
the bondholders are looking at is how can they get their money back? They can't
just walk away."
Orzy said his clients have obligations
to investors.
"What people like Leo Gerard are
doing is trying to vilify them, that's the historical thing that's been done
lots of times," he said.
Indeed, bondholders are regarded even
within the financial world as aggressive, tireless money-chasers.
jwalters@thespec.com
905-526-3302
with files from Naomi Powell
WHAT BONDHOLDERS ARE BEING OFFERED:
* SHARES IN STELCO: The deal would see
shares cancelled and new ones issued -- 100 per cent of which would go to
Stelco's unsecured creditors, including the bondholders.
* $225 million in secured convertible
notes, which are basically IOUs secured to the company's assets.
* $300 million in unsecured notes which
can be converted to shares.
* No cash.
WHAT THEY WANT:
* CASH: Stelco's plan offers its
unsecured creditors mainly notes and shares. Although they haven't said so
publicly, Bruce Leonard, chair of the Insolvency Institute of Canada, says
bondholders likely want cash.
* CONTROL OF THE BOARD: Since they
would own 100 per cent of Stelco shares under the proposed plan, the
bondholders want the power to choose seven of the nine board members.
* LESS FOR THE PENSION: The company
plan calls for a $400-million downpayment on the company's $1.3 billion pension
shortfall -- $300 million from the company, $100 million from a provincial
loan. The bondholders call for $300 million on the pension.