U.S. Steel has suffered a stinging loss in its effort to quarantine objections to its debt claims against the former Stelco.
In a recent decision, the judge overseeing the restructuring of the company's Canadian arm rejected an effort to have those objections kept out of the creditor protection case, sending them instead to a separate case.
In his decision, Justice Herman Wilton-Siegel said there were "good reasons" to keep the objections as part of the restructuring case, chief among them keeping the cases together provides a better chance of finding a solution that will keep the former Stelco alive.
Lawyer Gordon Capern, who represented the United Steelworkers in the action, said: "The union views this decision as an important step in ensuring that the court takes into account the manner in which U.S. Steel operated U.S. Steel Canada as the CCAA (creditor) process moves forward."
Gary Howe, president of Steelworkers Local 1005, welcomed the decision as a step that keeps the claims objections from being lost in a legal purgatory.
"We got what we wanted, because we were asking to keep this in the restructuring process," he said. "If our claims aren't in that process, it could get dragged out for years."
Lawyer Andrew Hatnay, representing the active and retired salaried employees, shared that view.
"This raises some important issues now rather than later and in a separate proceeding," he said.
U.S. Steel Canada went into creditor protection in September 2014 citing mounting losses, deteriorating business conditions and the crippling cost of fully funding its struggling pension plans.
The largest creditor on the list is its American parent, U.S. Steel Corp., of Pittsburgh, with claims of more than $2.2 billion.
Objections to that number have been filed by the United Steelworkers, the provincial government and former Stelco president Bob Milbourne and his wife. They argue the Canadian company is only in financial trouble because of the way it was intentionally managed by its American owners.
Wilton-Siegel highlighted those arguments in his judgment: "By way of overview, the USW submits that USS … directed the operations of USSC in a manner that has caused it to significantly underperform, thereby incurring substantial losses rather than achieving profitability and requiring it to incur significant debt," Wilton-Siegel wrote. "In essence, the USW argues that USSC would not have needed to commence these CCAA proceedings but for the decisions taken by USS regarding the operations of USSC."
Milbourne argues more pointedly that "in its management of the former assets of Stelco as part of its North American flat-rolled group of steel plants, USS took actions to idle the blast furnaces and steelmaking units of USSC, which resulted in significant losses to USSC, while USS continued to supply the former customer base of USSC from its steel plants in the United States."
They say those actions amount to oppression and breach of financial duty and justify pushing U.S. Steel's debt claims to the bottom of the list of creditors from the top. They also argue some of the amounts the company claims as debt is really equity investments in the company and legitimately belong at the bottom of the pile.
If the union is successful in that claim, the court could order some of U.S. Steel's debt claims reclassified as equity investments in the company, and equity investors are the absolute last to be paid when the carcass of a company is divided up.
A spokesperson for USSC did not respond to a request for comment.
Having some portion of USS' debt claims reclassified and pushed to the end of the line is important to the objectors because the company is widely expected to try to buy the Lake Erie Works and to pay for the transaction by cancelling some of the debt it claims to be owed — a move called a credit bid in business jargon.
"I don't think they can do a credit bid now," Howe said. "This just makes the situation worse for them."
Making some of that debt unavailable for a credit bid could increase the amount of cash USS would have to pay, some of which would be used to top up the desperately underfunded Stelco pension plans that support 14,000 area retirees.
At the last valuation, those plans were more than $830 million underfunded. A new valuation is being calculated now.
Reducing USS' debt claims would also reduce its power in a final vote on a restructuring plan for USSC.
The objectors had hoped for a decision under an American legal doctrine called equitable subordination — the idea that even secured debts can be pushed to the bottom of the pile if it could be shown a debtor company acted unfairly. The doctrine has not been extensively used in Canada.
Wilton-Siegel ruled, however, that while he has the authority to reclassify a debt claim under federal business law, he doesn't have the authority to invoke the principle under creditor protection legislation.
Source: thespec.com
- metaljunction »
- Metal News
Metal News & Events
METALJUNCTION PUBLICATIONS
Coal Insights (English) Monthly
Coal Insights is a ready reckoner for anyone associated with coal. This publication is aimed at tracking everything related to coal in India.
India Coal Market Watch(English) Monthly
ICMW is a one-stop source for all news, data and research pertaining to coal demand, consumption, stocks, spot- and long-term prices with respect to the Indian Market.
India Steel Market Watch (English) Monthly
ISMW is a brand new high-end steel market report, covering all aspects of the steel industry in India.
Steel Insights(English) Monthly
Steel Insights delves into various facets of the domestic and global steel industry such as market fundamentals, raw material price trends, price forecasts etc.