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 January 21, 2006 edition

Will Farley Give the Thumbs-Up?

Judge's decision on Stelco awaited as crucial loan agreements filed in time

By Naomi Powell
The Hamilton Spectator
(Jan 21, 2006)

Stelco met a crucial court deadline last night when it filed two proposed loan agreements critical to its restructuring.

Tricap Management and Stelco promised to have details of the proposed loans filed with the court by 5 p.m. yesterday after an angry Justice James Farley accused them of "sitting on their thumbs" at a hearing earlier in the week.

Stelco had asked the judge to approve its plan to exit nearly two years of bankruptcy protection. A $375 million loan from Tricap and a $600 million asset-based loan from a syndicate of lenders including CIT Business Credit Canada Inc. and GE Capital Markets Inc. are the financial backbone of that plan. The judge warned he wants assurances the plan can be implemented before he gives it his stamp of approval.

Asked if the proposed agreements -- which do not represent a binding commitment from the lenders -- would be enough to win Farley's blessing for the plan, Stelco CEO Courtney Pratt said "we hope so, but we don't know."

Farley has yet to release his decision, but could do so at any time.

At the urging of its bondholders, Stelco has appointed Dennis Belcher, a retired executive vice-president of credit and risk management at the Bank of Nova Scotia, to the board of directors.

Belcher's appointment appears to have settled a dispute with that controversial group of creditors who had complained they were not properly consulted before Stelco's new slate of directors was announced last week. Stelco will add an extra seat to its nine-member board for Belcher.

Meanwhile, Tricap Management, which will own a third of Stelco if the plan is approved, is trying to calm worker fears that a proposed corporate reorganization could put Hamilton Hilton Works at risk.

"I think in the fullness of time, once employees have had a chance to review this, they'll see this is the best thing for Stelco," said Cyrus Madon, senior vice-president of Tricap.

Tricap plans to separate Stelco's Lake Erie and Hilton Works operations into individual subsidiaries. The plan has raised employee fears the new structure would make it easier for Tricap to sell off Stelco's profitable Lake Erie works, leaving the ailing Hilton Works operation behind.

Andrew Hatnay, a lawyer for the company's salaried pensioners, said he's had a number of discussions with Tricap since the plan was unveiled but is not yet convinced.

"We have not reached a comfort level," he said yesterday. "We don't understand the need for this change. I mean they're moving the pieces around the chess board pretty dramatically here. And we don't understand why this was sprung on us at the last minute."

Hilton Works has higher costs than Lake Erie and has been called one of the least competitive steel mills in North America by Pratt.

Lake Erie is considered a highly competitive mill by comparison. Given the recent surge of consolidation efforts in the global steel industry, analysts have said the Nanticoke mill could easily attract a buyer.

"We have no plans to sell Lake Erie and absolutely no plans to shut down Hilton Works," Madon said. "The success of our investment relies on the success of Hilton Works."

Madon said he has received a number of phone calls from workers concerned about the plan, which would see Stelco Inc. essentially become a holding company with a corporate head office.

The individual subsidiaries would be managed and financed independently and at arm's-length from that head office. Madon says this will allow for more flexible financing for each operation and greater accountability for results.

Tricap is contributing $50 million in cash to Stelco along with a $375-million loan in exchange for ownership in the company.

The court-appointed monitor in Stelco's restructuring, Alex Morrison of Ernst & Young, said in a report yesterday the province has confirmed it is "working to resolve any remaining issues that may affect pension and related liabilities arising from the proposed corporate reorganization."

"In the end, people will be assured by deeds not statements," said Rolf Gerstenberger, president of the union representing Hamilton workers.

Farley has also yet to rule on a shareholder request for Stelco to be sold.

Stelco's plan would see existing shares wiped out and new ones awarded to creditors and to equity sponsors including Tricap, Sunrise Partners and Appaloosa Management. Shareholders argue Stelco would demand a considerable price in a sale, enough to compensate all parties as well as the shareholders.

npowell@thespec.com

905-526-4620