Stelco restructuring could benefit from government support of steelworkers

By Caroline Salls

Pittsburgh, July 8 - Stelco Inc.'s restructuring process could benefit from a letter of support from the Ontario government's steel industry adviser, according to a news release.

The adviser sent the letter to United Steelworkers' national director Ken Neumann.

"The goals as stated in the letter from James Arnett - to ensure that Stelco emerges from protection under the Companies Creditors Arrangement Act (CCAA) as a long-term viable operation and that pension plan deficiencies be addressed to secure the benefits of current retirees and plan members - are absolutely on the right path," Neumann said in the release.

Neumann said the letter echoes what the union has promoted throughout the lengthy CCAA process and, while falling slightly short of fully endorsing the Steelworker/Brascan plan for refinancing, supports the principles in the plan put forward by Brascan's financial arm, Tricap Management Ltd.

"We believe this indication of support from the government will go a long way toward protecting pensioners, workers and the community and can be a guide to Stelco emerging from CCAA with sufficient capitalization," Neumann said in the release.

According to the letter, the government has consistently expressed its willingness to be flexible in seeking a pension plan solution and, given the steelworkers' plan, would be willing to extend the amortization period beyond five years, renounce the right to a $15 million per year special premium and permit the suspension of solvency funding for more than $500 million in contingent liabilities for a fixed time period.

The letter said the current statutory regime calls for five years of solvency payments of more than $320 million per year.

In April, the United Steelworkers agreed to a letter of intent with Tricap, which proposed a commitment to arrange or provide a total of $1.35 billion in new capital comprised of:

*A C$600 million revolving line of credit;

*A C$350 million term loan; and

*An underwriting commitment to backstop C$400 million of equity-linked securities to be offered to existing stakeholders.

The proceeds would be applied as follows:

*C$500 million will be immediately contributed to Stelco's pension plans;

*About C$100 million will be used to repay existing Stelco secured debt; and

*C$750 million will be retained within Stelco to fund its capital expenditure process and for general corporate purposes.

Tricap also proposed that claims by current unsecured creditors would be satisfied through the issuance of new equity in a recapitalized Stelco.

"The next step is to ensure that all stakeholders coalesce around this show of support by the government and get on with the job of restructuring for the benefit of all," Neumann said in the release.

Stelco, a Hamilton, Ont., steelmaker, filed for bankruptcy on Jan. 29, 2004 with the Ontario Superior Court of Justice.

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