The United States Steel Corp. plan to provide financing for its Canadian unit in creditor protection is running into strong opposition from the Ontario government, the United Steelworkers union and other participants in the restructuring talks.
The battle lines have been drawn over U.S. Steel's plan to provide $185-million in debtor-in-possession (DIP) financing for U.S. Steel Canada Inc., which was granted protection under the Companies' Creditors Arrangement Act (CCAA) last month.
U.S. Steel controls the Canadian company and is its sole shareholder, guarantees $100-million in U.S. Steel Canada obligations and is its major debt holder. It is also the "purported secured creditor, purported unsecured creditor, integrated business partner and potential bidder for U.S. Steel Canada's assets," the Ontario government said in a court filing.
The filing noted that the parent company told U.S. Steel Canada that the Canadian unit would not be permitted to borrow money from any other lender that would rank ahead of U.S. Steel in any debt repayment.
But U.S. Steel Canada "should be able to consider and advance all restructuring alternatives for the benefit of its stakeholders without its controlling parent and sole shareholder restricting those alternatives at the outset of the CCAA proceedings," the provincial filing said.
The Pittsburgh-based company is scheduled to ask the Ontario Superior Court on Monday to approve the DIP loan, which will cover the Canadian unit's financial needs through Dec. 31, 2015. Ernst & Young, the court-appointed monitor in the restructuring, supports the U.S. Steel financing.
But other stakeholder groups weighed in against the plan in the first test of wills between the steel company and key stakeholders. The province is involved because it backed a $150-million loan that U.S. Steel Canada will have to repay by the end of next year and its Pension Benefit Guarantee Fund could be on the hook for as much as $400-million if U.S. Steel Canada's pension plans are wound up.
The United Steelworkers criticized the DIP financing proposal as "a thinly veiled loan-to-own strategy" that sets up U.S. Steel as a preferential bidder for the steel maker's Lake Erie Works in Nanticoke, Ont. The Lake Erie and Hamilton assets are part of U.S. Steel Canada, so if U.S. Steel wants to own them after the restructuring it has to buy them from its Canadian unit.
The Lake Erie works, which began turning out steel in 1980, are regarded as more desirable assets than the 104-year-old Hamilton operations. The Hamilton Works, which no longer makes steel, but includes two finishing mills and coke ovens, carries the lion's share of an overall pension solvency deficiency of $838.7-million.
The union also disputed contentions U.S. Steel Canada president Michael McQuade made in court documents last month that the union refused to sign a confidentiality agreement on a restructuring plan before the company sought protection under the Companies' Creditors Arrangement Act.
A written description of a restructuring plan and access to financial information were among the requests the union made in return for agreeing to confidentiality, the union said in court documents filed Thursday.
"United States Steel never responded meaningfully to these overtures," the union said.
"The DIP lender is the parent of the debtor, controls the debtor's order book and is a potential bidder in any sales process," the union noted.
The union urged the Ontario Superior Court to order mediation talks between the union, the company, the chief restructuring officer and other stakeholders to work out terms of a debtor-in-possession financing.
U.S. Steel Canada spokesman Trevor Harris said the company would not comment on the objections filed by stakeholder groups.