Stelco files restructuring plan; Ontario agrees to invest C$100 million in pension plans

By Caroline Salls

Pittsburgh, Sept. 20 - Stelco Inc. filed a restructuring plan with the Ontario Superior Court of Justice on Tuesday that provides C$630 million in net liquidity and gives unsecured creditors all the new equity in the restructured company, according to a company news release.

Stelco also filed a restructuring agreement with the Province of Ontario that includes an arrangement for funding the company's pension plans.

The plan reflects "constructive discussions" held with creditors and other stakeholders since the filing of a plan outline on July 15, Stelco president and chief executive officer Courtney Pratt said in the release.

Under the restructuring agreement, Ontario will invest C$100 million toward an upfront contribution to Stelco's pension plans. It has also agreed to a schedule of fixed annual cash payments the company will put into the plans through 2015.

In return, Stelco and the province have agreed the company will increase its proposed upfront contribution to the pension plans to C$400 million from the C$200 million proposed in the plan outline.

The restructuring agreement with the province is subject to completion of a funding arrangement with Tricap Management Ltd. to provide up to C$450 million in new financing and on the company entering into a memorandum of agreement with USW Locals 8782 (Lake Erie) and 5220 (AltaSteel) by Thursday.

"The province has shown considerable leadership and has broken the restructuring log jam by bringing a tangible pension funding solution to the table," Pratt said in the release.

"This solution meets the stated objectives of a number of our stakeholders. It provides stability surrounding our pension funding commitments over the next decade. And it provides security and assurance for our active and retired employees."

The restructuring plan will provide Stelco with an estimated C$630 million in net liquidity at the Dec. 31 implementation date.

Highlights of the plan include:

* New loans, including a new C$600 million asset-based revolving loan facility and a C$350 million revolving bridge facility, for which Stelco is seeking to finalize an agreement with Tricap;

* New financing, including C$225 million in secured convertible notes, C$300 million in contingent convertible 5% notes convertible into new shares, C$100 million in 10-year unsecured subordinated 1% notes issued to the government of Ontario in exchange for a C$100 million cash contribution.

If the pension solvency deficiency is fully funded by year 10, 75% of the note will be forgiven at maturity, with the balance payable in cash or shares;

* New equity, including new shares, which will all be distributed to general unsecured creditors subject to the warrants rights of the province, a C$75 million rights offering to subscribe to secured convertible notes, which will be backstopped in exchange for a cash fee and an option to purchase C$25 million of new secured convertible notes on the same terms as the rights offering, warrants with a seven-year maturity, issued to the province of Ontario to purchase up to 8.0% of the fully diluted equity at a 100% premium to the trading value of the new shares;

* New cash, including C$155 million in net proceeds from the sale of Stelco non-core assets, C$75 million from the planned rights offering and C$25 million from the exercise of the secured convertible note purchase option;

* Recovery to unsecured creditors will be in equity and equity-linked securities, including C$225 million in new secured convertible notes, C$300 million in new contingent convertible notes, 100% of the equity in restructured Stelco and rights to subscribe to C$75 million of new secured convertible notes. The total amount of recovery for unsecured creditors cannot be determined at this time;

* The province of Ontario will receive C$100 million in unsecured subordinated notes in exchange for a C$100 million cash contribution and warrants.

* Existing shareholders will receive no distribution under the plan.

Steelworkers may back plan

Local, district and national leaders of the United Steelworkers greeted Stelco's proposed plan with "guarded optimism" and the commitment that, if the company bargains in good faith, they can become full supporters of the plan by Thursday, according to a union news release.

According to the union release, the fact that the province of Ontario and Tricap have made their support for this effort clearly conditional on completed collective agreements with Locals 8782 (Lake Erie) and 5220 (Edmonton), underscores the fact that, in order for Stelco to be restructured properly, it must reach fair and equitable agreements with the union.

"The union will work with all its resolve to complete this process," steelworkers' national director Ken Neumann said in the release.

"We have long advocated the key features of the plan that is now being presented to the court. All that is needed to get to the finish line are finalizing the Tricap financing and reaching collective agreements that our members can ratify. We are committed to doing our part. We trust that Stelco feels the same."

Stelco, a Hamilton, Ont.-based steel company, filed for bankruptcy under the Companies Creditors' Arrangement Act on Jan. 29, 2004.

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