HAMILTON, ON, July 15 /CNW/ - Stelco Inc. (TSX:STE) today filed with the
Court a restructuring plan outline designed to ensure a viable Company over
the long term and provide lasting benefits for its stakeholders.
Courtney Pratt, Stelco President and Chief Executive Officer, said, "Our
plan outline is reasonable, realistic and responsible. It's reasonable because
it treats stakeholders fairly and in accordance with their rights. It's
realistic because we believe it is financially achievable. And it's
responsible because we are the only party with a legal obligation to balance
the interests and competing demands of stakeholders. I invite all stakeholders
to consider this plan outline from everybody's perspective, not just their
own, and to conclude that it is fair and reasonable. After so many months of
negotiating we should start working together to secure the approval and
implementation of a fair and reasonable plan."
The plan provides for the recapitalization of Stelco by arranging new
loans, selling non-core assets and issuing new securities. The plan is
designed to treat the interests of creditors and other stakeholders in a fair
and balanced manner:
- Pension beneficiaries, current employees, the union and the
Government of Ontario will benefit from a plan to retire the
Company's pension plan solvency deficiencies of about $1.3 billion by
2015. It is intended that the pension plans will receive
approximately $900 million in upfront contributions and annual cash
payments before the first new debt instrument matures in 2012.
- Secured operating lenders will be refinanced at the time of plan
implementation.
- Unsecured creditors will receive full recovery on approximately
$665 million owed to them by conversion of part of their obligations
to equity and the balance to new debt, some of which will be secured.
- Current equity holders will be offered less than 2% of the fully-
diluted shares outstanding, the right to purchase shares under a
$100 million rights offering and will receive warrants to purchase
10% of the Company on a fully-diluted basis.
"We've worked long and hard to find a middle ground between competing
demands," Mr. Pratt noted. "Various stakeholders may criticize the plan
because it does not provide them with everything they want. There is not
enough value in the Company to give every group everything it wants. The key
is to provide enough that everyone can support. We believe this plan strikes
that balance, that it is achievable, and that it will result in a viable
Stelco over the long term. This balance and achievability reflects the fact
that the plan outline does not propose to expropriate one party's interest to
satisfy the demands of another."
"The plan also provides a reasonable and financially responsible solution
to the pension funding issue," Mr. Pratt noted. "This has been one of our
stated objectives throughout the restructuring process. We believe that the
10-year deficiency retirement plan balances the competing interests of
responsibly funding Stelco's pension obligations and ensuring that the Company
has the funds needed to carry on its business. Those funds include the
$425 million to be invested in our critical capital expenditure program under
the plan outline."
The plan is also designed to provide the Company with the liquidity and
leverage that are appropriate and in-line with industry peers. It envisions
$600 million in new credit facilities, approximately $650 million of net
liquidity and a significant reduction in the Company's total debt.
There follows a backgrounder to and summary of the plan outline. The plan
outline documents can be accessed through a link available on Stelco's Web
site.
Stelco's Restructuring Plan Outline: Background and Summary
-----------------------------------------------------------
BACKGROUND
Stelco has tried to achieve consensus: Stelco has worked to secure
consensus among stakeholders for nearly 17 months. The Company has initiated,
accepted and participated in a number of consultative processes. The goal has
been to achieve the consensus of stakeholders around a plan that will receive
the necessary votes required for approval of a restructuring plan that will
enable Stelco to emerge from CCAA protection.
There is not enough value to meet every stakeholder's demands: Some
stakeholders have indicated their desire to improve upon their pre-CCAA
position at the expense of others. Stelco has indicated on many occasions that
there is insufficient value in the Company to meet all of the demands being
made by every stakeholder group. No group can get everything it wants. The key
is to find a middle ground that everyone can support.
Stelco has a legal obligation to balance the interests of stakeholders:
Stelco is the only stakeholder with a legal obligation to balance the
interests and competing demands of other stakeholders. Other parties have the
luxury of making demands designed only to benefit their own interests. As
well, the law states that a restructuring plan can only be implemented if it
secures the approval of affected creditors and the Court. Key to obtaining
those approvals is a plan that takes into account and treats the interests of
all stakeholders in a reasonable manner.
It's time to move forward: Stelco believes that stakeholders have clearly
enunciated their demands and negotiating positions. The continuation of this
posturing without resolution will not result in a timely outcome. At the same
time, the Company's competitive circumstance has suffered as a result of such
factors as falling steel prices, softening market conditions, and increased
raw material, energy and other costs. It's time for stakeholders to decide the
outcome of this process.
The goal - a viable company for the long term: Stelco is committed to
achieving a restructuring plan that enables it to emerge from CCAA as a viable
company for the long term; that is competitive throughout the market cycle;
that preserves jobs; that meets its obligations to retirees and other
stakeholders; and, that has the capital structure to support the Company in
achieving these objectives. Other stakeholders, depending on their particular
situations, may or may not necessarily be fully committed to these same goals.
A Plan Outline that can achieve this goal: Stelco has developed a plan
outline it believes is appropriate to submit to stakeholders for their
approval. The Company plans to meet next week with stakeholders to discuss the
plan outline, which is offered as a reasonable plan that is fair to all
stakeholders. It undoubtedly will be criticized by stakeholder groups that are
not getting everything they want or demand. However, it has the support of the
Company's Board, management, financial advisors and Chief Restructuring
Officer, all of whom view the plan outline as fair and reasonable.
A TWO-PHASED PLAN
The plan will be implemented in two phases:
Phase One: Immediately upon the Company's exit from CCAA. This phase
includes the issuance to creditors of $566 million of new debt and
$100 million of new equity. This phase will also see the payment of
contributions to the Company's four main pension plans of $100 million in
Senior Secured Notes and up to $100 million in cash from the proceeds of the
sale of the non-core assets.
Phase Two: Following a pension funding agreement with the Government of
Ontario and the conclusion of renewal collective bargaining agreements at Lake
Erie and Hamilton, $200 million of debt will be converted to equity and a
$100 million rights offering will be completed.
It is anticipated that the plan implementation will occur on or about
September 30, 2005.
NEW FINANCING
New financing will be raised to address the claims of creditors. This
will include:
Senior Secured Floating Rate Notes: The US$ equivalent of $250 million,
due in 2012.
Secured Convertible 6.25% Notes: $116 million, due in 2015. These Notes
become unsecured upon completion of the pension funding agreement and the
renewal collective bargaining agreements at Hamilton and Lake Erie. The Notes
are convertible into common shares.
Unsecured Convertible 1% Notes: $200 million, due in 2010. These Notes
are, among other features, convertible into common shares at the option of
Stelco upon completion of the pension funding agreement and the renewal
collective bargaining agreements.
NEW EQUITY
New Common Shares: 11 million New Common Shares of Stelco will be
outstanding immediately after plan implementation, 10 million of which will go
to the creditor group and 1 million to existing equity holders.
Rights: Rights to purchase New Common Shares pursuant to a $100 million
rights offering expected to be completed within 18 months and to be added to
liquidity.
Warrants: Warrants, with a 10-year maturity, to purchase 6.0 million New
Common Shares or about 10% of all New Common Shares to be issued on a fully-
diluted basis.
NEW CASH
- $175 million net proceeds anticipated from the sale of non-core
assets.
- $100 million from the Rights offering
- $90 million from the Warrants
A REASONABLE PLAN, A VIABLE COMPANY
The plan outline offers the prospect of a Stelco that is viable over the
long term:
- Approximately $650 million in net liquidity ($550 million Phase One
plus $100 million Phase Two)
- Assumed enterprise value of $885 million
- Positions of nearly all stakeholders will be enhanced, with potential
upside value
- Funding for $425 million in critical capital expenditures over 18-24
months
- An affordable pension funding schedule
- The plan has a reasonable prospect of being achieved if stakeholders
react responsibly
AN APPROPRIATE CAPITAL STRUCTURE
- Liquidity, leverage, balance sheet structure that are appropriate, in-
line with peers
- Up to $600 million of operating credit facilities
- Balance sheet improved by $300 million in equity (debt conversion +
new equity)
- Near-term maturities replaced with long term debt
- Leverage reflects that of the peer group
TREATMENT OF STAKEHOLDERS
Treatment of existing secured operating lenders
- Repaid in full
Treatment of creditors
Stelco's senior debentureholders, subordinated debentureholders, plus
trade and other unsecured creditors having claims totaling some $666 million
receive pro rata share of:
- The US$ equivalent of $250 million of the Senior Secured Floating
Rate Notes
- $116 million of Secured Convertible 6.25% Notes
- $200 million of Unsecured Convertible 1% Notes
- $100 million of New Common Shares
Treatment of pension plans
Stelco's four main pension plans will receive the following contributions
once Stelco and the government of Ontario have entered into a pension funding
agreement consistent with the terms of the Stelco plan.
- An upfront contribution of the US$ equivalent of $100 million of
Senior Secured Floating Rate Notes
- 2/3 of the net proceeds from the sale of the non-core assets, up to a
maximum of $100 million in cash
- Annual cash payments of approximately $98 million
- The pension plan solvency deficiencies of about $1.3 billion will be
retired by 2015
- As a result, the pension plan deficiencies will be addressed in a
manner that will reasonably secure the benefits of current retirees
and plan members.
Treatment of employees and retirees
- Stelco's salaried and bargaining unit employees and retirees are
unaffected by the plan
- They are not being requested to make any concessions in terms of
salaries and wages or pension and other benefits
- They will benefit from the proposed accelerated pension funding plan
Treatment of existing shareholders
In exchange for their existing common shares, existing shareholders will
receive a pro rata share of:
- 1 million New Common Shares
- The Rights
- The Warrants
As a result, existing shareholders have the opportunity to retain value
if they are prepared to invest new money in Stelco by exercising the Rights
and Warrants.
EQUITY OWNERSHIP
On exit from CCAA, the general unsecured creditors will hold 90.9% of the
equity while existing equity holders will hold 9.1%. If existing equity
holders do nothing more, their holdings will decline to less than 2%. After
the exercise of their Rights and their contribution of $100 million, existing
equity holders will have 29.8% of the equity while the general unsecured
creditors will hold 70.2% (pre-exercise of Warrants).
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.
%SEDAR: 00001549E
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