U.S. Steel Canada's parent company proposing to lend $185 million to let insolvent steelmaker maintain operations for another year
HAMILTON, Ont.—U.S. Steel Canada Inc. says a proposal from its parent company and largest secured creditor to lend $185 million will let the insolvent steelmaker maintain its operations for another year and begin a process to sell its two Ontario operations.
According to court documents, company president and general manager Michael McQuade said the proposed debtor-in-possession (DIP) funding was “appropriate,” with better terms for it than other creditor proceedings.
He said he was advised that the interest rate, fees and terms were below comparable DIP facilities.
The 20-page affidavit is part of U.S. Steel Canada’s submission to be decided by the Ontario Superior Court Oct. 6.
The American steelmaker is requiring that its funding will be first to be repaid.
The company has previously said it won’t consent to its Canadian operation borrowing money from any other lenders with priority.
Ontario NDP Leader Andrea Horwath said the company’s future is of deep concern for the people of Hamilton, Ont., and retirees who worry about their pensions being funded.
“What we can hope for is that the CCAA (Companies’ Creditors Arrangement Act) process will bring some justice to the workers,” she told reporters at Queen’s Park.
The Hamilton Centre MPP said the Liberal government needs to upgrade the Pension Benefits Guaranteed Fund, which provides pensioners as much as $1,000 per month in cases where a pension plan fails to provide benefits, such as when a company goes bankrupt.
“Those folks in Hamilton deserve a fair shake and they deserve to have a secure future,” she said.
Horwath said governments need to look carefully at giving companies extensions on the solvency requirements of their pension plans.
The four main pension plans have liabilities totalling nearly $839 million.
United Steelworkers (USW) union Local 1005 president Rolf Gerstenberger said he’s not surprised by U.S. Steel’s move to be first in line.
“All of the unsecured creditors will fight over what’s left,” he told CBC Hamilton. “But we’re not investors or stock brokers. We’ve been there for 30 to 40 years making steel, doing what we’re supposed to do.
“We don’t want to be eating cat food when we retire.”
The union leader has called the creditor filing a fraud and vowed to oppose it.
McQuade said the union was unwilling to discuss restructuring alternatives outside the court process.
A process to sell Hamilton Works, which has been permanently closed since December 2013 after being idled in late 2010, could begin in a couple of months, with Lake Erie Works in Nanticoke, Ont., following next March.
The company hopes to sell both properties by Oct. 31, 2015, and close the transactions by year-end.
“Commencing a SISP (sale and investment solicitation process) in respect of Hamilton Works will provides USSC and it stakeholders with a better understanding of the potential options available,” he added.
U.S. Steel Canada has about $3 billion of net operating losses and other tax attributes to help maximize value for stakeholders.
The former Stelco Inc., which U.S. Steel bought in 2007, has recorded a loss from operations in each of the past five years for an aggregate operating loss of about $2.4 billion since 2009.
Under the Companies’ Creditors Arrangement Act process, U.S. Steel Canada will carry on business as usual while it develops and implements a restructuring.