USS Canada Debt Threatens Businesses and Economy

“The distinguishing feature of the CCAA process is there is no distinguishing feature,” said bankruptcy trustee Doug Hoyes of Hoyes Michalos in a comment in the Hamilton Spectator. “You get to craft whatever plan you want that the creditors and the court will agree to.”

The negotiations can be a multiple year process that may threaten the financial viability of some businesses.

Loss of tax revenue from the USS Canada mills can also threaten the local economy. Hamilton officials say that the city could lose as much as $22 million in tax, water and sewer revenue if USS Canada fails to successfully restructure its debt.

US Steel Canada debt far exceeds its assets—$3.8 billion in liabilities compared to $1.9 billion in assets.

Pensions

The unions at US Steel Canada have had a rocky existence with the company since purchase of the former Stelco assets. With multiple past lockouts and ongoing pension worries, union officials worry that the bankruptcy protection is designed to dump Hamilton and shirk financial obligations to workers and pensioners.

USW Local 1005 President Rolf Gerstenberger told union workers that the bankruptcy protection is “an unconscionable scam from A to Z” and called it “bankruptcy fraud.” Gerstenberger’s comments on the filing in a September 18 press conference can be accessed here.

MPP Paul Miller (Hamilton East-Stoney Creek) says Canada’s bankruptcy and insolvency acts are outdated. The USS Canada filing is an “instant replay” of what happened with the Stelco bankruptcy ten years ago said Miller, expressing his disgust with “the behavior of the judicial system and the federal government’s participation” in that situation. He called the US Steel Canada filing “simply a corporation attacking their liability of pensioners.”

The pension problems actually began before the US Steel acquisition. When Stelco filed for creditor protection in 1981, the company was already having difficulty funding its pension plan. By 2003, a poisonous mixture of high interest rates, falling stocks, low contributions and early retirements resulted in a $1.2 billion shortfall and $240 million per year in required special payments. Stelco filed for creditor protection once again and after two years ended up with a $150 million forgivable loan from the province and 10 years grace to cover the shortfall. Steel prices surged and the company started turning out record profits.

US Steel purchased the Stelco assets in 2007 for $1.9 billion and assumed its debts (including the 150 million dollar loan to Stelco that is due at the end of 2015), just before the recession and steel crash. In 2008 and 2009 more than 700 workers were laid off, most of the Canadian operations were shut down by 2009 and in November 2013 the Hamilton blast furnace was shut down.

Pensions were a matter of contention in contract negotiations with Hamilton and Lake Erie Works. In the recent filing, US Steel cited US Steel Canada as representing $1 billion of US Steel’s benefit liability. Pension plans for US Steel workers in Hamilton and its Lake Erie works in Nanticoke face a shortfall of $838.7-million.

Hamilton Mayor Bob Bratina cited the record profits of Stelco in 2007 and says the manufacturing capability is there for Hamilton but US Steel failed to maximize the profitability of the plant. On a potential sale of Hamilton, Bratina commented, “US Steel is reluctant to sell with a competitor. The simplest thing would be to make a deal with ArcelorMittal and away you go. But that’s not on their books.”

Speculation has mostly centered on sale of the Hamilton plant which no longer produces steel. Lake Erie Works is considered the more modern and viable plant. Lake Erie Works USW Local 8782 President Bill Ferguson issued his first YouTube address on the US Steel filing urging members to remain calm and assuring them that operations will continue to proceed as usual during the coming court proceedings. Information meetings on CCAA have been scheduled for union members and Ferguson indicated issues will be dealt with as they occur.

Ferguson has been an outspoken leader for his union during past contract negotiations. His relatively quiet approach to the CCAA filing is in stark contrast with Gerstenberger and may be a sign the restructuring may favor the Lake Erie Works facility.

A September 18 article by The Globe and Mail indicated that restructuring talks for US Steel Canada earlier in the year involved splitting up Hamilton and Lake Erie Works.

“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,” wrote The Globe and Mail.

“Several sources involved in the restructuring and industry analysts believe U.S. Steel wants to hang on 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,” the article continued.

Whether that option is viable or under consideration is unknown. What is known is that US Steel is serious about shaking up its Canadian operations.

Michael McQuade, President and General Manager of U. S. Steel Canada, said in the filing announcement, “Despite substantial efforts over the past several years to make U. S. Steel Canada profitable, it is clear that restructuring U. S. Steel Canada is critical to improving our long-term business outlook. Operational changes, cost reduction initiatives and streamlining of operations cannot on their own make it competitive in the current environment. Entering CCAA was the only responsible course of action under the circumstances and it was taken only after all other options were thoroughly explored.”