Judge in WCI Steel case rejects both reorganization plans

By Jeff Pines

Washington, Dec. 16 - The judge in WCI Steel Inc.'s bankruptcy case said neither of the proposed reorganization plans is satisfactory.

One of the plans has been filed by the company and the other by the senior secured noteholders. There are $300 million of 10% senior secured notes due 2004 outstanding. The noteholders are led by Harbert Distressed Investment Master Fund Ltd. and the indenture trustee Wilmington Trust Co.

In an opinion filed Wednesday with the U.S. Bankruptcy Court for the Northern District of Ohio, judge Marilyn Shea-Stonum said she wants the two sides to work towards a consensual plan of reorganization. Shea-Stonum said she would not enter any orders or judgments over her opinion until at least Jan. 17.

Until then, no one will be able to file an amended or new plan without the court's approval unless the proposed plan has the support of WCI, the secured noteholders, the unsecured creditors' committee and the Pension Benefits Guaranty Corp.

A major problem with WCI's plan is that it undervalues the company and the assets securing the notes, leaving creditors, including the noteholders, with a weaker recovery than is possible. Shea-Stonum said WCI's valuation is "intellectually suspect and generally unreliable and the plan unfairly discriminates against the secured noteholders."

Under WCI's plan, Renco Group, the company's parent, would pay $35 million to WCI to keep its ownership of the company and not to the creditors. "This is impermissible roundhousing," the judge said.

The secured noteholders' plan is not feasible because there is no labor agreement and it may turn over the pension responsibilities to the PBGC. Their plan would create a new company leaving the pension plan with WCI and possibly Renco could step in and fund the plan or possibly leaving the pension fund to the PBGC.

Rather than create uncertainties, Shea-Stonum asked the noteholders to work on a consensual plan that would resolve all issues.

Based in Warren, Ohio, WCI filed for bankruptcy on Sept. 16, 2003.

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