United States Steel Corp. is taking a series of measures to insulate itself from any debt default by its Canadian operations, raising concerns that it plans to restructure the Canadian unit.
The steel maker has reached deals with one set of lenders and the purchaser of its receivables to exclude a default by U.S. Steel Canada Inc. on debt of more than $100-million (U.S.) from triggering a general default, according to regulatory documents filed in the United States.
At the same time, U.S. Steel is asking holders of its 2.75-per-cent senior convertible notes to agree to a similar change. It is offering them an incentive of $2.50 for every $1,000 worth of debt to help convince them to vote in favour.
U.S. Steel has undertaken a program to improve the performance and viability of its global operatons, including those in Canada, spokeswoman Courtney Boone said Sunday.
"The 8Ks that were recently filed relate to actions the company has taken to provide additional financial flexibility as that review continues,” she added, referring to the documents filed with the Securities and Exchange Commission.
U.S. Steel acquired then-Stelco Inc. in 2007, after what had been one of Canada’s blue-chip companies for almost a century emerged from a protracted and acrimonious restructuring under the Companies’ Creditors Arrangement Act.
The latest filings came after the company asked representatives of the United Steelworkers union at its Hamilton and Nanticoke, Ont., operations to engage in confidential negotiations about restructuring the Canadian operations, said Rolf Gerstenberger, president of Local 1005 of the union, which represents about 600 active workers in Hamilton and about 8,500 retirees.
The union refused to sign a confidentiality agreement, Mr. Gerstenberger said.
“What they want to discuss impacts 10,000 families in Hamilton,” he said, so the union needs the freedom to consult its members and retirees on any proposals.
Talks on a new contract between the union and workers in Hamilton are scheduled to begin Monday.
U.S. Steel has battled with the union since the acquisition – locking out workers during three separate sets of negotiations at the Hamilton and Lake Erie works – and faced a court challenge by the federal government, which accused the company of breaking investment and employment commitments it made under the Investment Canada Act when it acquired Stelco. That case was settled out of court.
The union has been concerned for some time that U.S. Steel will opt for a court-supervised restructuring of the former Stelco operations amid a high pension deficit, losses at the Canadian unit and the shutdown of steel-making operations at the Hamilton works at the end of 2013.
But “restructuring means renewal to guarantee a better future to use what already exists and make it better,” said a Local 1005 newsletter.
One of the company’s filings with the SEC refers to any event of default “that arises directly from [United States Steel Canada] being the subject of a proceeding for relief of debtors under any bankruptcy, insolvency or reorganization proceeding under the laws of Canada.”
One restructuring expert said at a minimum, the filings indicate the steel maker plans to approach the federal and Ontario governments for financial assistance to reinvest in its Canadian operations.
At a maximum, the expert said, U.S. Steel has given up trying to wring a profit out of its Canadian operations.
The company said in its annual report that the Canadian unit has not been profitable in comparison with other U.S. Steel flat-rolled steel making operations
A restructuring would likely involve negotiations with the federal government, which said that as part of the court settlement, U.S. Steel agreed to spend $50-million at its Canadian operations by 2015.
But the bigger issue is a solvency deficit in four pension plans that cover hourly workers and salaried employees in Hamilton and Nanticoke and stood at $837-million (Canadian) at the end of 2013.
As part of its purchase of Stelco in 2007, U.S. Steel assumed a pension agreement with the Ontario government that requires it to pay $150-million by Dec. 31, 2015, if the plans are still in a solvency deficit.
With the shutdown of steel-making operations at the end of last year, active operations in Hamilton now consist of coke making, a cold mill and galvanizing line and the Z-line, which finishes steel for such uses as body panels on cars.
The company still produces steel and operates finishing facilities in Nanticoke.