The Stel Salaried Pensioners Organization wishes to
thank The Hamilton Spectator for permission to post the following article by
Reporter Steve Arnold published in April 1, 2006 edition
By Steve Arnold
The Hamilton Spectator
(Apr 1, 2006)
It's over.
Stelco's long insolvency nightmare ended at midnight when it
emerged from bankruptcy protection after two years, two months and two days.
A smaller and leaner company is emerging from that crucible,
but it still faces a daunting future -- wrenching changes in labour relations,
a widely expected sale to a global steel giant and fears of falling back into
bankruptcy protection.
New president Rodney Mott has said his goal for Stelco is
growth. But that may involve a sale of the company.
"At Stelco, I believe you have to make yourself
competitive. I'm a builder. I'd love to see it grow. But growing may mean
consolidating with another company. We'll have to see."
Experts agree Stelco's future depends on how quickly the
steelmaker's cost of production problems are solved, especially at Hamilton's
Hilton Works.
"Everyone is focused on becoming more
competitive," Mott said. "I really think the potential is here to
bring this to competitive standards, possibly world-class standards (and) to be
a leader again."
Until those problems are solved, experts say Stelco remains
vulnerable to declining world steel prices and the financial difficulties of
major customers like General Motors.
During its time under the protection, Stelco negotiated a
plan to pay off its $1.3-billion pension deficit over 10 years with the help of
$150 million in public money from the provincial government.
It convinced debt holders to accept 66 cents on the dollar
as well as new debts. Former shareholders were wiped out.
And the company sold its subsidiaries including the Stelwire
plants in Hamilton and Burlington.
Stelco's new owners are also providing a pool of cash to
invest in Hamilton and Nanticoke.
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.
"Stelco has improved its financial position and its
balance sheet significantly, but we still don't know if that's enough to make
them a viable producer again," said Leonard, past chairman of Insolvency
Institute of Canada and chairman of International Insolvency Institute.
"Stelco has done the best job it could in the circumstances, and we hope
that will be a sufficient fix for the long term, but I tend to think not
because it's still dragging along its legacy costs."
Lawyer Tony DeMarinis, head of the insolvency unit of Torys
LLP, is also worried about the company where he once worked as a summer student.
"It's not clear to me that there have been enough
changes to the operating model at Stelco," he said.
Observers agree a critical piece will be how successful the
company is in winning changes to work rules at Hilton Works. The key is to
improve productivity. Contract negotiations with Local 1005 of the United
Steelworkers will start soon to replace the pact which expires July 31.
"That contract is critically important," said
McMaster University labour studies professor Wayne Lewchuk. "Stelco and
the industry are going through some tremendous changes and Hilton Works isn't
like the other plants."
Many expect the model for the new deal will be the pact at
International Steel Group in which 34 job classes were reduced to five, giving
workers a broader range of duties. The change was accompanied by an intense
training program. But steel expert Peter Warrian at the University of Toronto
said getting that deal will require some fundamental changes in union and
management attitudes.
"Right now both sides have a 'no surrender' attitude
and that has to change. They're like two sides of an armed camp," he said.
"What Stelco needs isn't a sand-and-paint reno job, it's a complete
rebuilding job."
Without such changes, he added, "18 months from now
Stelco will be right back in the soup. They've fixed the immediate financial
problems, but the jury's still out on everything else."
Richard McLaren, insolvency law expert at the University of
Western Ontario, agrees.
"Recidivism (relapse) rates for these cases are very high,
it's a bit like alcoholism," he said. "There's a fair chance of
seeing Stelco back in restructuring if any of the key assumptions of its plan
don't work out. Somewhere in the next few months, maybe as little as six
months, Stelco could be in trouble again."
"Everyone believes Algoma and Stelco are being prettied
up for a marriage," added David Phelps, president of American
International Steel Institute. "If Mott can make the rest of the company
pretty enough for somebody to come in and make an offer, there's no reason to
believe that Stelco will exist as an independent company."
Without changes, he added, the Hamilton plant may not
survive that marriage. "No one is going to buy a company that's a headache
like Hamilton. They maybe just don't make an offer, they'll either spin it off
or shut it down," he said. "Mott is going to come in with a big broom
and make it look pretty enough to acquire. Those parts that don't look pretty
enough are done."
sarnold@thespec.com
905-526-3496
With files from Lisa Grace Marr
and The Canadian Press