STELCO FILES FOR CCAA

Stelco filed for creditor protection under CCAA on January 29, 2004. We were represented in Court by Murray Gold of Koskie Minsky.

Under CCAA protection, Stelco will restructure its significant debt load. Stelco is looking at winding up or reorganizing its pension plans because they are seriously under-funded. There is a very serious risk that monthly pension benefits will be reduced.

Your pension and benefit interests can be represented effectively at the CCAA proceedings ONLY through a large group, such as the Stel Salaried Pensioners Organization. Unless we act together, we will have little if any influence on the process. Together, we are a large group, with important votes to cast on Stelco's restructuring plan and an important voice in the political processes that may affect our pensions and benefits.

The active participation of our organization in CCAA is critically dependent on the number of pensioners we represent so we again urge you seek out other pensioners for membership.

The legal costs for representation at CCAA are high, as much as $20 000 per month over many months, so obtaining timely funding from the membership is a critical issue and will control whether we can proceed.

A general meeting of the membership, with our lawyers present, is being planned so that the many questions we all have can be discussed and our future direction decided.

Our legal counsel, Murray Gold and Andrew Hatnay of Koskie Minsky, advise us that having legal counsel actively engaged when going into CCAA to represent the interests of the members of the Stel-Salaried Pensioners Organization is essential. Below, we include as a direct quote, the Koskie Minsky outline of the following: the CCAA legal process, the potential effect on our pensions and benefits, and the need to act together rather than individually.

“The CCAA process is a legal process. It is overseen by a Court-appointed Monitor, and there are statutory, common law and procedural rules that apply to it. It is a complex process that can be more or less transparent. Because it is a legal, Court supervised process, access to important parts of it are through the Courts and Court processes. All parties affected by a CCAA proceeding need legal representation in order to protect their rights. 

Also in this case, there is a significant possibility of pension restructuring. There are different approaches to the pension issue, and our voice needs to be heard directly in the pension restructuring process, and likely in provincial political corridors as well. Again, this can only be achieved if the retiree group is united and engaged in the process. 

Finally, retirees may have legal grounds to resist cuts in pension and health benefits that need to be advanced in Court. These arguments may prevail in some cases, and in other cases they may not, or they may be settled as part of an overall compromise. Other interests are vigilant in the protection of their legal rights, and retirees need to be as well.

Individually, the retirees and pensioners are powerless in a CCAA proceeding. CCAA Court time will be dominated by the interests that are most important to the restructuring - the Company's management (which continues to be in charge of the Company), its creditors (banks, bondholders and other lenders, whose approval to any Plan of Arrangement is essential), suppliers and customers (who may be creditors if they are owed significant sums but will also have a different interest in a future relationship with Stelco) and prospective investors. Individual retirees, if they wish to be heard in this kind of proceeding, must act together. Otherwise, their voices may be lost. 

In this case, because of retiree numbers, retirees may have an important role to play in this restructuring. This is because of the approval requirements for the Plan of Arrangement, which are that at least one half of the creditors approve the Plan. If retiree benefits are cut, each retiree may become a creditor. Together, retirees may have enough votes to significantly affect the outcome of the vote on the Plan of Arrangement, which may affect retiree rights in a significant way. Retiree votes may therefore give retirees influence in the shaping of the Plan of Arrangement - but only if retirees work together.

How the CCAA Process Works and How It Can Affect Us

The CCAA grants a company court protection from creditors for the purpose of reorganizing its debt with its creditors and emerging from court protection as a restructured, financially healthier company. The order issued by the court not only grants a company protection from creditors but also grants it additional powers to terminate or amend existing contracts while granting it immunity from lawsuits for breach of contract. The Company may try to use this power to change its health or supplementary retirement plans.

Obligations owing to retirees are expensive and thus an easy target for termination by the company.  If these benefits can be and are terminated, the retirees then become ordinary creditors.   They cannot sue the company.  Obtaining a remedy for such breaches can only result from strenuous negotiations with the company.   Under the CCAA, the proposed Plan of Compromise must be approved by "a majority in number representing 2/3 in value of the creditors, or class of creditors as the case may be, present and voting either in person or by proxy…"Individual creditors with relatively small claims are essentially powerless in negotiating a favourable result in CCAA proceedings. Thus, the greater an organized group of creditors is that represents a substantial number of claims against the company, the greater influence that creditor group will have in formulating the plan to its advantage because the group has the ability to veto the Plan, which the company does not want. 

Amounts owing to retirees may become "claims " in a claims process. Recovery from a claims process is to be negotiated with the company as part of the "Plan of Compromise" which the company makes with all its creditors and which must be voted on in favour by a majority of the entire creditor group. The claims process will generate payments to creditors as either a percentage on the dollar or shares of the company, which represent a fraction of the value of the claims.”

Yours truly,

Steering Committee

Stel Salaried Pensioners Organization