HAMILTON, ON, Dec. 22 /CNW/ - Stelco Inc. (TSX:STE) today announced that
the Forty-Fourth Report of the Monitor in the matter of the Company's
Court-supervised restructuring has been filed. The full text of the Report,
including a number of appendices and schedules, can be accessed through a link
available on Stelco's web site. Certain portions of the Report have been
redacted due to the confidential nature of the information. An appropriate
court order will be sought to seal the full version of the Report in due
course. The Report deals primarily with the following matters:
Recommendation on the sanction hearing: The Monitor states its view that
the restructuring plan approved by affected creditors on December 9, 2005 is
fair and reasonable. The Monitor recommends that the Court sanction the plan
at the hearing scheduled for January 17, 2006. In support of this
recommendation the Monitor indicates its belief that Stelco has satisfied the
requirements imposed on it regarding the meetings of affected creditors held
in November and December, including the requirements under the CCAA and all
Court Orders made during the restructuring process. The Monitor also states
the view that the plan approved on December 9, 2005 represents a fair and
reasonable compromise among stakeholder groups and is fair and reasonable in
terms of its effect on the affected creditors.
Fairness of the plan and implications had an agreement not been reached:
The Monitor reviews the elements of the plan approved by affected creditors on
December 9, 2005 describing the plan as the embodiment of a point of consensus
among key stakeholder groups. The Monitor states that, given the intensity of
the negotiations towards an agreement, it does not appear that an agreement
would have been reached had it been necessary to provide material
consideration to flow to the existing shareholders. The Monitor notes that the
existing shareholders rank behind the creditors of Stelco in terms of legal
priority.
The Report observes that without an agreement such as is embodied in the
plan approved on December 9, 2005, it is unlikely that Stelco would be able to
emerge as a viable entity. The Report notes that, under a realization in the
absence of an approved plan, the unsecured creditors would receive
approximately 13 to 28 cents on the dollar on the amount of their claims.
Analysis of enterprise value and the impact on recovery: The Report notes
that the Monitor has obtained an independent estimate of the enterprise value
of Stelco. This analysis, prepared by the Valuation Group of Ernst & Young
Orenda Corporate Finance Inc. ("EYO") is provided as Appendix H to the Report.
The Monitor notes that the EYO analysis estimates the enterprise level, fair
market value of Stelco's integrated steel business at January 1, 2006 to be
between $635 million and $785 million. The Monitor adds that the EYO findings
are unlikely to change substantially by the end of February, 2006, the time at
which Stelco is currently expected to emerge from the CCAA process, subject to
the Court's approval of the restructuring plan.
The Monitor notes that, based on the EYO analysis, the enterprise value
of Stelco's integrated steel business is not sufficient to satisfy in full all
of Stelco's liabilities on emerging from the CCAA process including the claims
of affected creditors. As a result, the Report notes that the estimated
enterprise value is insufficient to provide value for existing shareholders.
The Monitor notes, as set out in Schedule 1 to the EYO analysis, that
Stelco is forecasting that its new asset based loan facility will be drawn in
the amount of $380 million on exiting from CCAA after receipt of net proceeds
from the Province of Ontario Note and from the asset sale process, and after
payment of $400 million to the pension plans. The Monitor also notes that, as
is also found in Schedule 1 to the EYO analysis, Stelco's outstanding interest
bearing debt and stayed debt obligations exceed the EYO estimate of enterprise
value by between $257 million and $407 million.
In light of these considerations, and based on the EYO estimate of value,
the Monitor concludes that the affected creditors will not receive a full
recovery on their claims. As a result, and having regard to legal priorities,
the Monitor expresses the view that the plan approved by affected creditors is
not unfair or unreasonable to the existing shareholders. The Monitor goes on
to express the view that any plan which did provide for a recovery to existing
shareholders in these circumstances would likely not be viewed as fair,
reasonable or acceptable to the affected creditors.
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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