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 10, 2005 edition

Stelco Deal at Last

Bondholders agree, pensions safe

By Naomi Powell
The Hamilton Spectator
(Dec 10, 2005)

Stelco has at last found an exit to nearly two years of bankruptcy protection.

The steelmaker forged a landmark deal with its bondholders yesterday, after intense negotiations that postponed the ballot five times in one day. The plan won the support of 78.4 per cent of creditors and should protect jobs and pensions for the future.

"It's a whole new beginning for Stelco," said Stelco CEO Courtney Pratt.

"It's been, as you can well imagine, a roller-coaster ride. There was a tremendous amount of insecurity. People were worried about the future of the company, the future of their jobs. You could see it on their faces."

Now, said chief restructuring officer Hap Stephen, Stelco could be out of bankruptcy protection by the end of January.

City officials and Stelco's unions, all battered after 23 months of uncertainty that saw Stelco's fortunes rise and fall repeatedly, reacted yesterday with a sigh of relief.

The deal preserves a $400- million down payment on Stelco's $1.3-billion pension shortfall, and calls for no worker concessions.

"Finally there's an end to it," said Bill Ferguson, president of the United Steelworkers representing Lake Erie Workers. "It must be a relief to pensioners to know they have some security. It's a heck of a Christmas present."

Stelco will return to Justice James Farley's court on Monday, where it hopes to schedule a sanction hearing for some time before Christmas. That's when Stelco's shareholders, who see their investment cancelled under the plan, are expected to put up a fight.

"The one clear group that lost is the shareholders," said Pratt, who called this aspect of the plan "regrettable."

As the results were announced at 5:30 p.m., a jubilant Pratt started the clapping that spread through the half-empty meeting room at Mississauga's International Centre, where the vote took place. If the plan had been vetoed yesterday, the company would likely have faced a court-ordered sale.

"We can all start thinking about the future," he said later. "Obviously, we have some very ambitious plans for Stelco."

In the end, only a handful of the purple ballots were cast -- the majority of them in the hands of proxies representing bondholders and creditors. Most of the marathon negotiations that dominated the last few days involved the bondholders who, as Stelco's largest group of creditors, had the power to kill any plan. Several votes over the past few weeks were cancelled as the company struggled for their support.

Ultimately, it was the bondholders' agreement on ownership that saved the deal. Representatives for the bondholders were not available for comment.

The approved plan will see Tricap Management Ltd. own at least 34.5 per cent of Stelco, with investors Sunrise Partners LP and Appaloosa Management sharing a minimum of 34.9 per cent of the company.

However, the two hedge funds -- Sunrise of Toronto and Appaloosa of New Jersey -- could eventually own 53.5 per cent of Stelco, if all creditors decide to take a portion of their compensation in cash and not shares.

The crux of the deal is a cash pool worth $137.5 million, contributed by Tricap and the hedge funds. Out of that pool comes compensation of $108.5 million in cash for all the creditors, who are owed a total of about $640 million. The remaining portion of the pool can be taken in either cash or shares.

If all creditors choose the cash option, Appaloosa and Sunrise will buy the available shares, increasing their control of the company to 53.5 per cent.

The deal retains a previously negotiated $375 million loan from Tricap, as well as a $150 million loan from the province of Ontario.

"This is such good news for Hamilton that they've come to a deal," said Mayor Larry Di Ianni. "This puts to an end a very stressful and difficult time for this city. I'm looking forward to seeing this company build again with all the tax, employment and social program benefits Stelco brings."

A new nine-member board will be appointed at Stelco, with Tricap selecting four directors, Appaloosa and Sunrise choosing one each, and the remaining being appointed among the shareholders.

Richard McLaren, a bankruptcy expert at the University of Western Ontario, says hedge funds like Sunrise and Appaloosa want to see a company turn around so they can make their money and get out.

"They aren't there for the long term," he said.

Despite shareholder protest, McLaren said it's highly unlikely that Farley will make any changes to the deal.

"It's such a fine and delicate balance that has taken a long time to get to, any tinkering with it would likely cause its collapse."

Hap Stephen, Stelco's chief restructuring officer, said Stelco's process is one the most difficult he has ever experienced.

"Time wasn't helping this restructuring," he said. "The longer it went the more difficult it became."

npowell@thespec.com

905-526-4620

With files from Meredith MacLeod

The Deal at a Glance

* $400 million down payment on Stelco's $1.3 billion pension debt;

* No concessions in wages, pensions or benefits for workers, no job cuts;

* Stelco to emerge from bankruptcy protection as early as January;

* Existing shares are cancelled;

* The province: contributes a $150 million loan -- 75 per cent of the loan is forgivable if the company settles its pension debt in 10 years.

* Tricap Management Ltd. provides a $375 million loan still to be finalized;

* Ownership: Tricap will own a minimum 34.5 percent of new shares. Appaloosa Management and Sunrise Partners together take a minimum 34.9 per cent;

* Unsecured creditors receive: $275 million in secured notes, shares and a portion of a cash pool of $137.5 million provided by Tricap, Sunrise and Appaloosa. They also receive new warrants, which give them seven years to buy new shares for $11 per share;

* The board of directors: current board will be wiped out once the plan is launched. Tricap will name four new directors with Sunrise and Appaloosa naming one each. Remaining directors will be chosen by shareholders.