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
December 6, 2005 edition
By Naomi Powell
The Hamilton Spectator
TORONTO (Dec 6, 2005)
A new set of investors and Stelco's
bondholders are fighting for control of the Hamilton steelmaker.
Stelco ambushed its bondholders
yesterday with a new restructuring plan that gives them more cash, but denies
them control of the company.
And outraged bondholders vowed to wreck
the deal when it comes up for a vote Friday.
That prompted an angry response from
Superior Court Judge James Farley, who demanded all sides stop playing games
and end Stelco's 23-month crisis.
"You know, I would think the
stakeholders who have a financial interest in this matter would refrain from
playing chicken," Farley said.
"They should do what is right,
rather than completely self serving."
The frustrated judge gave Stelco 22 hours
to come up with a solution.
Stelco's new plan would see 88 per cent
of the company go to three players -- Tricap Management, Sunrise Partners and
New Jersey hedge fund Appaloosa Management.
In exchange for a joint cash
contribution of $137.5 million -- to be divided among all creditors -- Tricap
would get 35.2 per cent of Stelco's new stock while Sunrise Partners and
Appaloosa Management would receive 26.4 per cent each.
The remaining stock would go to
creditors and to the province in exchange for its $150 million loan toward the
pension deficit.
The $137.5 million would allow Stelco
to pay cash to the bondholders, but drastically reduces the amount of shares
they receive.
The creditors would still get $275
million in secured notes. The bondholders would get more than half of that.
Richard Orzy, a lawyer for the
bondholders, called the plan a "forced takeover bid" and vowed to
kill it in a creditor vote. The bondholders are owed $275 million (plus
interest), giving them the final say on any plan.
"For 24 months, we've been told
the creditors would get the equity," Orzy told the court. Now, he said,
"all stops are being pulled" to ensure those shares end up in
Tricap's hands.
Bondholders are the most powerful group
of Stelco creditors.
They purchased debt at a fraction of
its value in the hope of earning more when Stelco emerges from protection.
Lawyers attributed the stakeholders'
fresh appetite for Stelco stock to recent bids by steel giants Arcelor and
ThyssenKrupp on neighbouring steelmaker Dofasco.
Germany's Thyssen-Krupp made a hefty
$4.8-billion friendly takeover offer for Dofasco last month, after Arcelor SA
of Luxembourg launched a $4.3-billion bid.
Those offers have sparked hope that
another rich bidder might be waiting to purchase Stelco once it emerges from
bankruptcy protection.
"People want to own (Stelco's)
post-emergence equity," Orzy said. "That's what the last five days
have shown."
Outside the court, Stelco CEO Courtney
Pratt expressed doubt about a potential bidder.
"Dofasco's a different company
under different circumstances," he said. "Don't forget, (Stelco's)
been out there and everybody knows it's been for sale for 22 months. A lot of
people did a lot of circling, a lot of people saw a lot of information about
Stelco in the last 22 months."
The company's latest plan, forged after
a weekend of intense negotiations, maintains a $400 million upfront payment on
Stelco's $1.3 billion pension shortfall.
It is backed by the province's $150
million loan and a $375 million loan still to be negotiated with Tricap. Stelco
was recently forced to pay the restructuring firm -- an arm of Brookfield Asset
Management (formerly Brascan) -- a break fee of $11.3 million after the terms
of a previous refinancing agreement changed.
The plan also lays out the terms for
control of Stelco's board of directors -- which has been a hot issue for
bondholders in the past. Under the plan, Tricap would appoint four of nine
directors, with Sunrise and Appaloosa naming one each. The remaining directors
would be named by Stelco's shareholders through a voting process.
"I thought when we left the office
on Friday we had a deal," Orzy said. "This plan is a sea
change."
The bondholders are preparing a rival
restructuring plan and have already raised $150 million in financing.
Although the company was only looking
for a week-long extension on its creditor protection yesterday -- enough time
to put the plan to a vote on Friday -- Orzy said the bondholders need one more
month to obtain the remaining financing. He told Farley he would try to present
a timetable for the plan this morning.
Yesterday's extension staved off
Stelco's lenders, who intended to request an interim receiver to protect the
collateral on their loans -- totalling about $217 million -- if Farley refused
to give the steelmaker any more time.
Stelco appeared to have made a major
breakthrough on Nov. 23 when Pratt announced all stakeholders had agreed on the
monetary elements of a plan.
In the days that followed, however,
discussions deteriorated, forcing the company to postpone several creditor
votes.
As part of its November plan Stelco was
going to give creditors $250 million in notes convertible to shares as payment
of their debts. Tricap had offered to buy those notes at a discount in order to
get more shares in Stelco.
Talks were derailed late last week by a
richer offer from the company's convertible noteholders, sparking a weekend of
intense negotiations by Tricap, resulting in yesterday's plan.
npowell@thespec.com
905-526-4620