WCI, Renco appeals of plan confirmation denial dismissed by District Court

By Caroline Salls

Pittsburgh, Oct. 26 - Appeals by WCI Steel Inc. and its parent Renco Group Inc. of orders denying confirmation of competing plans of reorganization in WCI's bankruptcy case were dismissed by the U.S. District Court for the Northern District of Ohio on Tuesday.

Citing the extensive time and cost of sending the issue back to the bankruptcy court, the District Court granted a request by WCI Steel's secured noteholders to throw out the appeals.

In a May 3 filing with the U.S. Bankruptcy Court for the Northern District of Ohio, WCI and Renco said their issues of appeal included:

* Whether the court was wrong to deny confirmation because it made its own valuation of the equity interest. WCI and Renco cited the precedent established in Bank of America NT & SA's case against North LaSalle Street Partnership. In line with that case, they had already established the value by market methods by terminating the exclusivity and marketing the company to potential buyers;

* Whether the court failed to recognize that the termination of exclusivity satisfies North LaSalle's market testing requirement;

* Whether the court failed to credit the full value of the contributions offered by Renco as the plan funder;

* Whether the court improperly used the standard for determining whether classification of unsecured claims under the plan was proper;

* Whether the court used improper standards to determine whether Renco's offer to buy claims in class 7 violates the bankruptcy code; and

* Whether the court improperly determined the value of the noteholders' collateral.

The appeal also covered the court's decision to lift the moratorium intended to allow the opposing sides in the case to come up with a consensus plan.

Judge's opinions

According to district judge Peter C. Economus' Tuesday order, although a remand instructing the bankruptcy court to cease judicial valuation of the competing plans would save WCI and Renco time and expense, the court would be required to do far more than resolve the North LaSalle issue, it would also have to "delve into the record" to resolve multiple fact-based determinations by the bankruptcy court, "such as whether the payment on the secured noteholders' claims was sufficient and even, possibly whether [WCI] made a bona fide marketing effort."

In addition, Economus said WCI and Renco "optimistically overestimate" the time and expense a reversal based on the North LaSalle issue would take.

Economus said even if the confirmation order were reversed, the bankruptcy court may still need to proceed with another round of confirmation hearings based on other outstanding issues.

On April 13, the bankruptcy court denied confirmation of both WCI's own plan of reorganization and the competing noteholders' plan.

The court said the company's own plan cannot be confirmed because of "the overly conservative reckoning of enterprise value of the reorganized debtor and aggressive characterization of the new value being provided by existing equity; [and] the debtors' undervaluation of the secured noteholders' collateral, i.e., plan, property and equipment."

The court said the noteholders' plan is not feasible and, therefore, cannot be confirmed.

The court also said WCI's plan violates law because Renco is retaining 100% of the new equity while failing to contribute new value that is worth the reasonably equivalent value of the equity.

Also, the company's plan is not confirmable because its distribution of $94 million of new 9% 10-year notes does not comply with requirements.

The Chapter 11 case number for WCI, a Warren, Ohio-based steel company, is 03-44662. It filed for bankruptcy on Sept. 16, 2003.

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