U.S. Steel Canada Inc. plans to put its operations in Hamilton, Ont., up for sale within two months, but delay a sales process for its Lake Erie works until March, 2015.
The potential sale of the Hamilton site, which includes finishing mills, coke batteries and iron- and steel-making operations that have been shut since late 2010, is the first significant proposal U.S. Steel Canada (USSC) has made since it entered bankruptcy protection last week under the Companies' Creditors Arrangement Act (CCAA).
"Commencing a SISP [sale and investment solicitation process] will provide USSC and its stakeholders with a better understanding of the potential options available with respect to the Hamilton Works operations and related assets," Michael McQuade, the company's president, said in an affidavit.
His affidavit forms part of the company's request for approval of $185-million in debtor-in-possession financing, which will be submitted to the Ontario Superior Court on Oct. 6. The financing will be provided by United States Steel Corp., the parent company of the Canadian unit.
USSC, which consists of the main assets of the former Stelco Inc. purchased by U.S. Steel Corp. in 2007, was granted CCAA protection, citing pension solvency deficiencies of $838.7-million, ongoing losses and $3.9-billion in debt and equity pumped into the Canadian unit by its parent since 2007.
The Hamilton Works has the highest pension solvency deficiency and 12,614 members in pension plans, compared with 771 active employees.
Comments made by Local 1005 of the United Steelworkers, which represents about 600 of those active workers and the unionized retirees, are another reason to begin the sales process, Mr. McQuade said.
Local 1005 president Rolf Gerstenberger has described the CCAA filing as a fraud and said his local will oppose it.
"As a consequence and in the absence of a willingness of Local 1005 to engage in a restructuring dialogue about potential alternatives involving other existing stakeholders," Mr. McQuade said, "USSC must explore whether other alternatives exist that might gain support from applicable stakeholders."
Local 1005 is a key employee stakeholder group, along with USW local 8782, which represents unionized employees at the Lake Erie operations in Nanticoke, Ont.
A timeline submitted as part of the court filing showed the company beginning a sales process for Lake Erie in March and completing sales or investment transactions for both Hamilton and Lake Erie by Oct. 31, 2015.
The Ontario government, which regulates the pension plans and whose Pension Benefit Guarantee Fund faces a $400-million hit if the funds are wound up without any further contribution from USSC, will also play a key role in the restructuring.
As part of the Stelco deal, Ontario provided U.S. Steel with a $150-million loan bearing interest of 1 per cent, 75 per cent of which was forgiven if the solvency deficiencies in the pension funds were eliminated by the end of 2015.
Mr. McQuade said in earlier filing that there was no possibility the deficiencies would be wiped out.
The Canadian unit has $3-billion in net operating losses and "other tax attributes," Mr. McQuade's affidavit said.
"Preserving and ultimately utilizing those tax attributes could help maximize value for stakeholders," he noted.
The debtor-in-possession financing should be sufficient to cover U.S. Steel Canada's needs through the end of 2015, he said.
The 5 per cent interest rate on the financing compares with an average of 10 per cent for other CCAA financings, he said.