Stelco obtains creditor protection

Stelco, Canada's largest steelmaker, seeks protection from its creditors in bankruptcy court

Financially troubled Stelco Inc., the country's biggest steelmaker, went into court-ordered creditor protection on Thursday so it can restructure.

The Hamilton-based steelmaker, which employs 9,500 people at its various operations in Canada and the U.S., obtained an order under the Companies' Creditors Arrangement Act at a hearing in Ontario Superior Court of Justice on Thursday morning.

Shares of Stelco lost more than half their value, dropping 90 cents to end the day at 83 cents.

"A thorough financial and strategic review has concluded that we face a serious viability issue," said Courtney Pratt, Stelco's president and CEO, in a statement issued prior to the start of stock trading.

"Our problems include a high cost structure, a deteriorating cash position and an inability to compete against other steel companies that have benefited from their own restructurings," Pratt said.

Bankruptcy Protection
Bankruptcy protection is actually an informal term for a filing under the Companies' Creditors Arrangement Act.

A company files under the CCAA for permission to set up a restructuring or reorganization plan that would give it time to try to arrange its affairs so that it can keep operating.

As long as a CCAA order remains in place, creditors are not allowed to take any action to collect money owed to them. They can't seize the company's property or force it into bankruptcy.

Since a CCAA filing is made because a company is deeply in debt (under CCAA rules, a company must have more than $5 million in liabilities), the first order of business is to strike some kind of deal with the people or organizations owed money. That includes lenders, unpaid suppliers and bond-holders, to mention a few.

Negotiations among the company and its debtors can take weeks or even months. Essentially, the sides are trying to find a compromise.

"The company cannot continue to produce losses and consume considerable amounts of cash. We need to reduce our costs, improve productivity, focus on key operations and products, and become more competitive," the CEO added.

Pratt said recent increases in steel prices are not expected to be sufficient to offset rising costs.

"The sooner we act, the better our ability to preserve the cash we need, fix our problems, emerge as a stronger company and attract the capital to fund the capital expenditures that will makes us more competitive," he said.

The United Steelworkers said the union is prepared to play a leading role in the restructuring of the company.

"Our union is prepared to be constructive and creative, provided the restructuring is based on creating an economically strong entity to operate Stelco's assets, preserving and investing in the company's operations, maintaining the living standards of our members, and protecting the pensions of our retirees," Lawrence McBrearty, the national director of the union said.

McBrearty added that Stelco appears to be committed to maintaining the wages, benefits and working conditions of Steelworker members while a turnaround plan is developed.

Turnaround expert Hap Stephen has been appointed as chief restructuring officer. Stephen has previously worked on restructurings at Algoma Steel, Eatons, Beatrice Foods, Dylex, Olympia & York and Mosaic Group.

Stelco losing money

Stelco posted a loss of $168 million through the first nine months of 2003. The company reported a $42-million third-quarter loss, citing weak demand for its products, higher operating costs, a higher Canadian dollar and cheap imports.

Steel Industry Quick Facts
» Employs 33,000 Canadians directly, with about 120,000 jobs created as spinoffs. » $11 billion in sales annually. » Major industry customers: transportation, appliance manufacturing, oil and gas, machinery and construction. » Industry facing low steel prices worldwide and low-cost competition from Brazil, China, Korea and India. Source: Canadian Steel Producers Association
Shortly after, the company said it needed to significantly cut its labour and pension costs in order to return to profitability, and hoped it could do this without filing for creditor protection.

Stelco latest steelmaker to file for protection

Stelco now becomes the fourth Canadian steel company to file for creditor protection over the past few years.

Montreal-based Ivaco was the most recent, obtaining protection last September. Algoma Steel has already emerged from its protection. Slater Steel filed for creditor protection in June.

Ont. premier appoints special advisor on steel industry

In the wake of Stelco's move to bankrupcy protection, Ontario Premier Dalton McGuinty appointed James Arnett as a special advisor to work with the province's steel producers that are currently restructuring. Arnett was CEO of Molson Inc. from 1997 to 2000 when the company restructured.

McGuinty had plans to speak Thursday with the mayors of Hamilton and the County of Haldimand, union leaders, and senior management at Stelco.