Stelco files restructuring plan

Company and Province of Ontario agree on pension funding solution 
Creditors offered new equity and equity-linked securities 
Company to pursue collective agreements

HAMILTON, ON, Sept. 20 /CNW/ - Stelco Inc. (TSX:STE) today filed a
restructuring plan with the Court. It also filed a restructuring agreement
with the Province of Ontario that includes an arrangement for the funding of
the Company's pension plans.
Courtney Pratt, Stelco President and Chief Executive Officer, said, "This
plan, together with the restructuring agreement with the Province, represents
a significant step forward in our quest for a consensual restructuring and a
positive outcome. It provides a strong platform for restructuring the Company.
And it moves us closer to the goal of emerging successfully from Court
protection as a viable steel producer at Lake Erie and in Hamilton. We're
looking forward to constructive discussions with our bondholders and others
towards obtaining their support."
Mr. Pratt noted that the plan reflects the constructive discussions held
with creditors and other stakeholders since the filing of a plan outline on
July 15th. "We've listened to the views that have been expressed, we've acted
on those concerns, and we've tried to amend the plan outline in accordance
with our objective of a fair and reasonable restructuring plan," he noted.
"The result is a plan that represents an appropriate balancing of interests."
Under the restructuring agreement, the Province will invest $100 million
towards an upfront contribution to the Company's pension plans. It has also
agreed to a schedule of fixed annual cash payments the Company will make into
the plans through 2015. This formula will replace section 5.1 of the
Regulation under the Pension Benefits Act. In return, the Province and the
Company have agreed that Stelco will increase its proposed upfront
contribution to the pension plans to $400 million from the $200 million
contained in the Company's July plan outline.
The restructuring agreement with the Province is conditional on the
conclusion of a funding arrangement with Tricap Management Limited ("Tricap")
to provide up to $450 million in new financing and on the Company entering
into a Memorandum of Agreement with each of USW Locals 8782 (Lake Erie) and
5220 (AltaSteel) by 9:30 a.m. on Thursday, September 22, 2005 or such later
date as the Province, acting reasonably, may agree. To that end, the Company
indicated today that it is committed to continuing its efforts to conclude
these agreements.
"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. "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. I want to thank the Province for the
constructive role it has played in this process and for the meaningful
contribution it is making to the resolution of this matter."
The plan will provide Stelco with an estimated $630 million in net
liquidity at the plan implementation date of December 31, 2005. And the new
capital structure and available liquidity will facilitate pursuit of the
Company's four-point strategic plan announced in July 2004.

Highlights of the plan filed today include:

New loans
---------
-  A new $600 million asset-based revolving loan facility.
-  A $350 million revolving bridge facility supplied by a financing
provider. The Company is seeking to finalize an agreement with Tricap for
this purpose.

New financing
-------------
-  Secured Convertible Notes: $225 million.
-  Contingent Convertible 5% Notes: $300 million, convertible into new
common shares upon the satisfaction of certain conditions to be
determined.
-  Unsecured Subordinated 1% Note: $100 million with a ten-year maturity,
issued to the Government of Ontario in exchange for a $100 million cash
contribution. If the pension solvency deficiency is fully funded by year
10, then 75% of the Note would be forgiven at maturity, with the balance
payable in cash or shares.

New equity
----------
-  New common shares: All new common shares will go to the general
unsecured creditors subject to the Warrants rights of the Province.
-  Rights: A $75 million rights offering to subscribe to Secured
Convertible Notes. The rights offering will be backstopped in exchange
for a cash fee and an option to purchase $25 million of new Secured
Convertible Notes on the same terms as the rights offering. The Company
is negotiating such rights offering and option to purchase with Tricap.
-  Warrants: Warrants, with a seven-year maturity, issued to the Province
of Ontario to purchase up to approximately 8.0% of the fully diluted
equity at a 100% premium to the trading value of the new common shares.

New cash
--------
-  $155 million in net proceeds from the sale of Stelco non-core assets.
-  $75 million from the planned Rights offering.
-  $25 million from the exercise of the Secured Convertible Note purchase
option.

Treatment of stakeholders
-------------------------

Existing secured operating lenders
----------------------------------
-  To be repaid in full.

Unsecured creditors: Recovery will take the form of equity and equity-
linked securities. The Company indicated today that there is insufficient
value to provide full recovery to unsecured creditors under the plan. The
actual level of recovery to be realized by unsecured creditors cannot be
determined at this time. It is conditional upon a number of complex factors
which, themselves, cannot be determined at present. These factors include
conditions that must be satisfied under the plan itself, market conditions,
and the achievement of collective bargaining agreements to name but three.
-  $225 million in new Secured Convertible Notes.
-  $300 million in new Contingent Convertible Notes.
-  100% of the equity in a restructured Stelco.
-  Rights to subscribe to $75 million of new Secured Convertible Notes.

Province of Ontario
-------------------
-  $100 million Unsecured Subordinated Note in exchange for a
$100 million cash contribution.
-  Warrants (see: under "New equity" above).

Pension plans
-------------
-  An upfront cash contribution of $400 million.
-  Fixed annual cash funding payments of $60 million a year through 2010
and $70 million a year between 2011 and 2015. These payments will not be
subject to changes in actuarial assumptions.
-  Additional contributions to be based on a formula driven by the
Company's free cash flow.
-  Any solvency deficiency at the end of 2015 will be funded through the
normal 5-year pension funding rules.

Employees and retirees
----------------------
-  Salaried and bargaining unit employees and retirees are unaffected by
the plan.
-  No concessions are being sought in terms of salaries and wages, or
pension and other benefits.
-  Salaried and bargaining unit employees and retirees will benefit from
the pension funding agreement between the Company and the Province.

Existing shareholders
---------------------
-  The Company indicated today that there is insufficient value to
provide recovery to existing shareholders. The existing shares will be
effectively cancelled.

Next steps

The materials filed today included the restructuring agreement with the
Province and a restructuring plan. A number of motion materials were also
filed. The motions seek Orders to, among other things, approve the
restructuring agreement, to provide the procedures and timing of a meeting of
affected creditors to consider and vote upon the Company's plan, and to extend
until December 2, 2005 the stay period that will otherwise expire on
September 23, 2005. These matters will be addressed during a Court hearing
scheduled for Thursday, September 22, 2005.
The full text of the plan will be accessible later today through a link
available on the Company's website.

About Stelco
Stelco Inc. is a large, diversified steel producer. Stelco is involved in
major segments of the steel industry through its integrated steel business,
mini-mills, and manufactured products businesses. This news release may
contain forward-looking information with respect to the Corporation's business
operations, financial performance and conditions. Actual results may differ
from expected results for a variety of reasons including factors discussed in
the Corporation's Management's Discussion and Analysis section of the
Corporation's 2004 Annual Report. To learn more about Stelco and its
businesses, please refer to our Web site at www.stelco.ca.
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