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Steam billows from a stack at the U.S. Steel Canada plant in Hamilton, March 4, 2009.MIKE CASSESE/Reuters

Executives of U.S. Steel Canada Inc. proposed breaking the company into pieces and wanted the United Steelworkers to join them in lobbying the Ontario government for pension relief and forgiveness of potential environmental liabilities, union officials say.

The steel maker proposed the restructuring earlier in the summer before being granted protection under the Companies' Creditors Arrangement Act on Tuesday and before opening negotiations on a new contract with local 1005 of the union, which represents workers in Hamilton, the union officials said.

The first restructuring proposal, under the Canada Business Corporations Act (CBCA), not creditor protection, called for splitting the company's Lake Erie Works in Nanticoke, Ont., into two units and its Hamilton operations into four units. United States Steel Corp. would purchase them from the Canadian unit.

The Lake Erie works is the more modern of U.S. Steel Canada's assets, having begun operations in the 1980s, and was regarded as the key asset Pittsburgh-based U.S. Steel wanted when it acquired what was then Stelco Inc. in 2007.

One of the key differences between the Lake Erie and Hamilton operations is the size of the pension deficit in Hamilton, which is a 100-year-old operation with about 6,000 active employees and more than 9,000 pensioners.

"The object of the CBCA restructuring is to isolate most pension obligations and the environmental cleanup associated with Hamilton Works from Lake Erie," Rolf Gerstenberger, president of local 1005 of the union, said in a letter to Jodi Koch, United States Steel Canada's human resources director. "The CBCA restructuring proposal is obviously meant to liquidate U.S. Steel's pension obligations and other post employment benefits."

Several sources involved in the restructuring and industry analysts believe U.S. Steel wants to hang to the more modern Nanticoke operations – the two companies created by splitting that unit would be called Lake Erie Works and Lake Erie Land – and shed the Hamilton facilities.

Steel-making operations in Hamilton were idled in 2010 and ceased permanently at the end of last year. The company still operates coke batteries in Hamilton and two finishing mills that process steel shipped from the Lake Erie mill.

The steel maker wanted the Ontario government to forgive a $150-million loan that is due at the end of 2015 and approve a change in pension funding that would stretch payments out to 2031 or 15 years, instead of the provincial requirement that solvency deficiencies in pension funds be eliminated over a five-year period, Mr. Gerstenberger's letter said.

That "pension restructuring comes nowhere to meeting the legal pension obligations of U.S. Steel," he wrote.

U.S. Steel Canada spokesman Trevor Harris said the company had discussions with governments and other stakeholders about a potential restructuring. He did not address the plan to break the company into six parts.

"We are continuing to investigate ways in which it might be possible for the senior levels of government to assist in our restructuring efforts and look forward to future discussions," he said.

The company's pension plans have a solvency deficiency of $838.7-million. The deficit in the plan for unionized employees and retirees in Hamilton stood at $573-million as of the most recent valuation at the end of 2013.

"Local 1005 does not think these USS schemes will create a viable Hamilton Works and it opposes them," Mr. Gerstenberger said in a separate letter to Ms. Koch.

U.S. Steel Canada was granted protection from creditors on Tuesday.

Its president, Michael McQuade, warned in a court filing that if the pension funds are not successfully restructured, the Ontario government could be forced to spend $400-million to bail out pensioners under the province's Pension Benefit Guarantee Fund, which backstops employers' defined benefit pension plans.

A spokeswoman for Ontario Finance Minister Charles Sousa said the government will not comment on discussions it held with U.S. Steel.

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