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Economy U.S. Steel faces challenge over claim on Canadian assets

Steam billows from a stack at the U.S. Steel Canada plant in Hamilton in this file photo taken March 4, 2009. U.S. Steel is asking the Ontario Superior Court to approve its claims against U.S. Steel Canada Inc. (USSC), which could underpin a bid to purchase all or some of the assets of USSC, which is operating under Companies’ Creditors Arrangement Act protection. U.S. Steel has said it is considering repurchasing the Canadian assets.

Mike Cassese/Reuters

United States Steel Corp. faces a battle from key stakeholders as it seeks to make a claim of more than $2-billion against the assets of its Canadian unit, which the steel maker put into bankruptcy protection last September.

U.S. Steel (USS) is asking the Ontario Superior Court to approve its claims against U.S. Steel Canada Inc. (USSC), which could underpin a bid to purchase all or some of the assets of USSC, which is operating under Companies' Creditors Arrangement Act protection. U.S. Steel has said it is considering repurchasing the Canadian assets.

The Pittsburgh-based company's claim on the assets of USSC is being opposed by the Ontario government, active and retired salaried employees, the United Steelworkers union, which represents hourly workers at the Canadian operations and by Robert and Sharon Milbourne, who are beneficiaries of a pension agreement with U.S. Steel Canada.

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Mr. Milbourne is a former president of Stelco Inc., which U.S. Steel purchased in 2007 and renamed U.S. Steel Canada.

The groups opposing the U.S. Steel claim argue that their claims will be subordinated if the company's full claims are approved.

The employee and retiree claims include pensions owed to them from pension plans with a solvency deficiency of $839-million and other postemployment benefits of more than $700-million that they are owed.

"If allowed, [U.S. Steel's] claims will improperly and inequitably displace the union's and beneficiaries' recovery on their legitimate claims," the steelworkers union said in a court filing.

The Ontario government is a stakeholder by virtue of a $150-million loan at 1 per cent that it made to U.S. Steel as part of a refinancing of the pension plans. Ontario is also on the hook through its Pension Benefit Guarantee Fund for payments to pension holders if the pension plans are wound up.

U.S. Steel "is attempting to rank first among creditors in payment priority on the basis of its purported secured claims," the Ontario government said in a court filing. "The acceptance of a secured claim in favour of USS would result in any value achieved in the restructuring process flowing first to USS prior to reaching any other stakeholders."

Since the takeover of Stelco in 2007, U.S. Steel has battled with governments and unions – even before the Canadian unit went into CCAA protection in September, 2014.

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The company was prosecuted by the federal government under the Investment Canada Act after breaking promises on jobs and steel production it made when it took over Stelco.

The steel maker said the 2008-09 recession rendered it unable to meet those commitments.

The prosecution was later dropped by Ottawa after a settlement agreement, the details of which remain secret.

The company locked out workers on three separate occasions at its Hamilton and Lake Erie works. Only one of four sets of contract talks with union locals at the two operations was settled without a lockout.

The claims by U.S. Steel arise from losses at the Canadian operations of $2.4-billion between 2008 and 2013.

But the stakeholders objecting to its claims argue that loans and other financing advanced to USSC constitute equity and not debt, as the Canadian unit had no independent board of directors, all decisions were made in Pittsburgh and there was no "reasonable expectation" that the loans would be repaid.

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"The court must also consider whether the USS claims constitute bona fide indebtedness, or whether they are properly characterized as equity contributions from a controlling parent company," the Ontario government's filing said.

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