The
Stel Salaried Pensioners Organization wishes to thank The Hamilton Spectator
for permission to post the following article by Reporter Tara Perkins published
in the March 31, 2006 edition
By TARA PERKINS
TORONTO (CP) - Stelco Inc. (TSX:STE) is being born again,
two years, two months and two days after the Hamilton-based steel company filed
for bankruptcy protection.
As of midnight Friday the reincarnated Stelco will have
fewer plants, 1,500 fewer workers, a new board and CEO, and even new letterhead
with new names for its two remaining operations.
It hopes to be a leaner, meaner version of the 95-year-old
steel maker, but the restructuring process has not been cheap and Stelco's future
is still up in the air.
It has spent more than $80 million on lawyers and advisers,
and $49 million on other restructuring expenses with significant further costs
still to come.
Its shareholders, who placed a market value on the company
of $167 million before it filed for protection, have been wiped out. Some
creditors have not received interest on Stelco's debts.
The new Stelco will be partially bankrolled by Ontario
taxpayers. The province is lending the company $150 million at an annual
interest rate of one per cent until 2015. It will forgive 75 per cent of the
loan if Stelco wipes out its $1.3-billion pension deficit by then.
When we went into this, everyone was looking at this taking
a year, outgoing chief executive Courtney Pratt said in an interview Friday,
his last day on the $810,000-a-year job; he will be chairman of the new
company's board.
What's happened is, it's taken two years and two months, and
it's been way more complex.
But he insisted Stelco made the right decision in January 2004
when it filed for protection under the Companies' Creditors Arrangement Act.
The corporation had suffered big losses in 2003 and said it
faced insolvency by the end of 2004 without a restructuring.
Then steel prices soared to all-time highs in late 2004,
benefiting steelmakers worldwide, including Stelco.
This restructuring has been nothing like what anyone would
have anticipated for a whole range of reasons, driven by the fact that we
started to make money, Pratt said.
Stelco's profits fuelled arguments by workers and creditors
that they should not be forced to suffer, provoking high-profile fights
involving the United Steelworkers union, bondholders and money managers who
owned Stelco shares.
In Bay Street legal circles, Stelco will be remembered as a
four-ring reorganizational circus, said insolvency lawyer Bruce Leonard of
Cassels Brock Blackwell LLP.
One of Canada's best-known judges, Ontario Superior Court
Justice James Farley, presided over the case, eventually telling the dozens of
lawyers to speed it up because he had been waiting to retire when it ended.
Unlike dozens of American steel makers that filed for
Chapter 11 reorganization in the United States, Stelco was not able to slash
its union wages or unload its legacy pension and other costs.
It must make a $400-million payment this year into its
pension deficit, followed by annual payments for a decade. Stelco is not
allowed to pay dividends until its pension deficit is dealt with.
While it has begun to upgrade its plant in Nanticoke, Ont. -
now to be known as Lake Erie Steel General Partnership - Stelco has been too
bogged down by its refinancing to begin many of the projects it hopes will
revitalize its aging operations.
Its new board will be reviewing plans ranging from a new
steel-finishing line in Hamilton to wind energy developments.
Pratt will be replaced as CEO by Rodney Mott, who headed
Ohio-based International Steel Group Inc., before it was bought by Mittal Steel
last year in a $4.5-billion-US deal.
The shape of the new Stelco has largely been drawn by Tricap
Management Ltd., a restructuring fund run by Toronto-based Brookfield Asset
Management (TSX:BAM.LV.A), formerly Brascan Corp.
Tricap, organizing a $375-million loan for Stelco, will own
about one-third of the 26.1 million new shares, which will begin trading Monday
on the Toronto Stock Exchange with an initial valuation of $5.50 each, a total
of about $144 million.
Two other investment firms, Sunrise Partners LP and
Appaloosa Management LP, will split an ownership stake of at least 34.9 per
cent.
Stelco is splitting its remaining operations into nine
limited partnerships. Its Hamilton plant will be known as Hamilton Steel
General Partnership, while other divisions will hold land, coke and energy
assets.
Some union officials worry that the new organization is
designed to enable Stelco to eventually rid itself of the high-cost Hamilton
plant.
Tricap maintains the plan will make it easier to raise
financing for the Hamilton operation.
The contract covering the Hamilton workforce expires July
31.
Among other challenges, Stelco has cautioned that prices it
will receive under contracts with customers will be lower in 2006 than they
were last year.
But it has wooed General Motors back as a customer, after
the auto maker bought much of its steel elsewhere last year because of fears of
labour disruptions at Stelco.
In the wider picture, Stelco notes that the steel industry
continues to consolidate and there are risks related to not participating in
consolidation, including risks related to cost competitiveness and access to
large customers.
Cyrus Madon, managing director of Tricap and one of Stelco's
new board members, said Friday that Stelco is well positioned today, citing
Mott's track record as a 30-year veteran of the steel industry.
Stelco has been recapitalized and has substantial liquidity,
Madon said.
They have negotiated a long term pension funding agreement
and the industry dynamics in which Stelco is operating are strong. We are
confident that the pieces are in place to positively move the company forward.