Stelco committee responds unfavorably to government support of steelworkers' restructuring role

By Caroline Salls

Pittsburgh, July 14 - Stelco Inc.'s informal committee of independent convertible noteholders responded negatively to the government of Ontario's public support of the United Steelworkers' role in Stelco's restructuring, according to a company news release.

In its letter to Province of Ontario financial adviser James Arnett, who wrote the letter in support of the steelworkers, the committee said it was surprised by the steelworkers' union's press release because Stelco's bankruptcy judge ordered that the mediation parties keep the mediation discussions confidential in an effort to encourage the parties not to negotiate through the press.

"We are concerned that once again correspondence from the Province of Ontario's adviser may delay the efforts to negotiate a consensual restructuring of Stelco," the committee said in its letter to Arnett.

"It is the committee's view that an earlier letter from you in January 2005 materially complicated Stelco's recapitalization process. There is a risk that your latest letter may simply encourage a protraction of the current impasse in negotiations."

The committee said the adviser's stance may also reinforce what it calls misunderstandings about Stelco's pensions.

According to the committee, in 1992 the government of Ontario enacted a specific regulation in order to exempt larger companies from having to fund their pension plan with additional amounts to cover the risk of a catastrophic total failure of the company.

"By doing so, the government presumably was encouraging companies to invest more in their businesses thus creating new jobs and job security rather than make economically inefficient and excessive investments in their pension plans," the committee said in the letter.

Since 1992 Stelco management and the steelworkers union entered into a series of collective bargaining agreements with pension arrangements based upon and structured around that policy, the committee said.

"Fortunately, notwithstanding the appearance created by recent rhetoric, government policy and Stelco's collective bargaining agreement have not created a crisis in the Stelco pensions," the letter said.

The committee said the adviser's January letter threatened that the government of Ontario would pass a new regulation specifically prohibiting Stelco, and only Stelco, from availing itself of the large company exemption.

"This sudden reversal in policy threatens the long-term viability of Stelco because it would force the company to make large, crippling and excessive pension payments and divert cash flow from the business thereby impairing the company's competitiveness," the committee said.

The committee added in the letter that the latest letter will not facilitate what it considers a timely and commercially reasonable restructuring of Stelco and that the letter may discourage future investment in Stelco, and in the Province of Ontario generally.

The committee consists of holders of Stelco's 9.5% convertible debentures due in 2007.

Stakeholders: plan consensus unlikely

Stelco's court-appointed monitor also released the 33rd report on the status of the company's restructuring, according to a separate news release.

According to the report, most stakeholders expressed the view that it was unlikely that any consensus on a Companies Creditors' Arrangement Act plan outline could be reached by July 18 and that the next step should be the production of a plan leading to a vote.

According to the report, the company has indicated its intention to file a plan outline on July 15, and the monitor suggested meetings be held with the company and stakeholders beginning the week of July 18 to discuss Stelco's plan outline.

Also in the report, the monitor recommends that the company's request for an extension of the stay period until Sept. 9 be granted to allow discussions concerning Stelco's plan outline; to provide time for the subsequent development and filing of a formal restructuring plan; to complete the claims procedure; and to maintain Stelco's operational and financial stability.

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

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