The Stel Salaried
Pensioners Organization wishes to thank The Hamilton Spectator for permission
to post the following article by Reporter Steve Buist, published in the
November 23, 2005 edition
By Steve Buist
The Hamilton Spectator
(Nov 23, 2005)
Now that the game of chicken being played out in Stelco's
restructuring is down to its final hours, who will blink first - the company or
its bondholders?
The assumption has been that the bondholders have all the cards
and Stelco needs to keep sweetening the pot or risk having the plan voted down.
That's been the underlying reason two previous attempts to vote on
a restructuring plan were postponed until today.
Stelco's creditors will again gather at the Mississauga
International Centre for this afternoon's vote, scheduled to begin at 4 p.m. If
they reject the latest restructuring plan, or if the vote is postponed again,
the issue is scheduled to land back in court before Justice James Farley on
Friday morning.
But what if the company decides late in the game to call the
bondholders' bluff? What might happen if Stelco puts forward an amended
restructuring plan that doesn't have the support of its creditors?
History offers such a precedent, and one of the key players is now
at the heart of Stelco's current restructuring.
Four years ago, Algoma Steel's chief restructuring officer Hap
Stephen - who now holds the same position with Stelco - was playing a similar
game of chicken with the company's bondholders as the clock ticked down on
Algoma's bankruptcy protection.
Stephen put forward a restructuring plan for Algoma that didn't
have the support of the company's bondholders and suggested that he was
prepared to take a chance.
"They're going to say no, not enough, until the end ... and
then ultimately vote for it," Stephen said at the time.
Stephen also hinted that it would be in nobody's best interest to
search for drastic solutions to Algoma's problems.
"You can't shut (Algoma) down for a while and bring it back
up, and you can't put it in a box and ship it to China."
Algoma's bondholders, meanwhile, dismissed the plan as "a
dead end," called on the government to inject more money and threatened to
allow the company to be liquidated.
Sound familiar?
Much the same posturing has been evident during Stelco's
restructuring.
But now, at the 11th hour, the poker game comes down to a simple
calculation for the bondholders -- do they make more money accepting a plan
that gives them 66 cents on the dollar in equity, or do they vote it down and
take the chance that a liquidated Stelco brings in more than the predicted 17
to 34 cents on the dollar?
"Each side has believed they've had the upper hand,"
said Dr. Peter Warrian, a University of Toronto professor who specializes in
steel industry issues. "They've both been trying to figure out a way that
their ox would get less gored than the other guy's ox."
A no vote could indeed backfire on the bondholders, says Richard
McLaren, a University of Western Ontario professor who specializes in corporate
insolvency issues.
"They're definitely running that risk with a negative vote.
They could come out worse. Everyone keeps saying 'Let's get a negative vote and
then we'll entertain alternative proposals.' My answer is: What other
proposals? There are no other proposals out there."
One unknown is the true value of a liquidated Stelco.
"We've always assumed that voting it down leads to
liquidation, but maybe that's not the case," Warrian said.
McLaren raised the gloomy possibility that Stelco's Hilton Works
might end up as a pleasant greenspace known as "Hilton Park,"
assuming the hundreds of millions of dollars could be found to clean up a
century's worth of steelmaking on the site.
"The environmental cleanup could well exceed the value of the
property. I don't think anyone would foresee an ongoing operation at Hilton
Works."
What's also not known are the discounted prices the bondholders
paid to acquire the bond debts that have a face value of more than $320
million. There's no requirement for bondholders to disclose that information.
"It's certainly conceivable that if they bought them for 25
cents on the dollar, they're already making money," Warrian said.
sbuist@thespec.com
905-526-3226