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
February 11, 2005 edition
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Feb. 11, 2005. 12:29 AM |
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Stelco must repay pension debt |
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By TARA PERKINS |
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The provincial government has sent the cost of buying Stelco out of bankruptcy protection soaring. In a last-minute decision that could scare off buyers before Monday's deadline, the province has ordered Stelco to pay off $1.3 billion in pension debt within five years. That could mean hundreds of millions of dollars annually for a steelmaker that has never made that much money in a year. The decision means that Deutsche Bank can rescind its $900-million offer that Stelco negotiated as a floor bid because the conditions of the purchase have changed so significantly. "We think the timing of the government's letter is unfortunate," said Hap Stephen, Stelco's chief restructuring officer. Final offers to buy or refinance the steelmaker are due on Monday. Stephen said that -- in the worst case -- if Stelco didn't receive any bids and had to pay off the deficit "we'd be broke in a flash." Pat Mousseau, part of the committee representing Stelco's salaried employees, said this is "very serious for Stelco" and could affect the bidding process because "it's a huge liability to put in front of any bidder." Jim Arnett, the province's adviser on steel, could not be reached for comment. However, in a letter sent to Stelco Wednesday, he expresses frustration that government concerns about Stelco's pension issues did not seem to be getting through to bidders. "While this position has been communicated orally to Stelco's management and advisers, and to the various bidders, on numerous occasions, it seems not to have been taken into account ... ," he wrote. The move is welcome news for Stelco's 13,000 pensioners, representatives say. "It's nice for a change that somebody's looking after the best interests of working people," said Bill Ferguson, president of United Steelworkers' Lake Erie local. "We're
ecstatic," said Paul Wendling, spokesperson for Stelco's 4,000 salaried
retirees. That
group has been lobbying the government to force Stelco to pay the deficit, so
that former workers will receive their cheques even if the steelmaker goes
under one day. "The
prospects for this company have turned dramatically," said Murray Gold,
a lawyer for the salaried retirees. "There's no doubt in our mind that
Stelco can pay this off in five to 10 years." Since 1996, Stelco has been taking advantage of a provincial law referred to as the 'too-big-to-fail' clause. It was based on the belief that large companies could never go bankrupt. It allowed Stelco, General Motors, and many others to stop filling up contingency funds that companies build so they can pay their pensioners even in times of financial trouble. Although Stelco has been paying its retirees all money owed to them, if the company went under, it would be short $1.3 billion owed to the pensioners. The 'too-big-to-fail' clause was eliminated three years ago, but Stelco was grandfathered, and the steelmaker's pension deficit continued to balloon. Without the clause, companies normally have to pay off deficits within five years. Last year, Stelco paid $64 million into its main pension plans. If it wasn't using the clause, it would have had to pay $353 million. In the letter to Stelco, Arnett informed Stelco that its grandfathering privileges were over. He said it has become clear that there is "a very significant enterprise value in Stelco." And he expressed disappointment that the floor bid negotiated with Deutsche Bank "did not indicate any intention to address the pension funding issue and, indeed, contained a condition that there would be no change in the government's regulatory regime regarding Stelco pensions." By removing Stelco's use of the clause, Arnett has changed the regime, and effectively given Deutsche Bank the chance to walk away. Conditions in Deutsche Bank's offer have been triggered before -- for example, when Stelco lost General Motors' business. Rumours have been circulating recently that Stelco's bidding war is cooling off. On Wednesday, Algoma pulled out of the contest, citing "significant risks" involved in buying Hamilton's storied steelmaker. That narrows the field to five companies that can submit offers, besides Deutsche Bank. Severstal, U.S. Steel, TD Securities and a joint venture between Sherritt International and the Ontario Teachers' Pension Plan are still in the running. Sources say Mittal Steel, which was expected to submit an offer, likely won't bid. Bidders aren't commenting, citing confidentiality agreements with Stelco. Steel markets have cooled off recently, Stephen said, but he added that all of the bidders were aware that the pension deficit was an issue and it had to be addressed in offers in one way or another. But they didn't know they would be forced by the government to pay off the deficit quickly. In his letter, Arnett said "the government supports your auction process and, to that end, is prepared to be flexible in discussing a fair and reasonable plan for the consequent need to fund the pension deficiencies." One Toronto steel analyst said forcing Stelco to pay off its deficit in five years will push it straight back into bankruptcy protection. Negotiating payments over 15 years would be more reasonable, he said. Stelco plans to negotiate with the government "to develop a fair and reasonable plan" that it can afford, the company said in a statement. One observer said that this news could send Stelco stock tumbling, because it means bidders will allocate more money to pensioners and less to shareholders. Stelco shares closed yesterday at $3.07, down five cents. In a statement from the Steelworkers, Ferguson said "after 12 months of unnecessary court protection, it was time for the province to force Stelco to pay less attention to facilitating exorbitant profits and inflated bonuses for market traders and financial institutions and to pay more attention to putting the company on a solid footing going forward." tperkins@thespec.com 905-526-4620 |