US Steel Canada Sale Process to Begin

“With potential SISP bidders showing interest in USSC’s business and with important operational decisions for 2017 needing to be made beginning in the second half of 2016, the SISP should be initiated now to allow the appropriate window of time for its proper administration. The proposed timing will allow a SISP to be completed while USSC has sufficient liquidity and the benefit of financing from USSC’s DIP lender.”

The decision to start the sales process was considered too soon for some stakeholders who hoped to settle the US Steel debt claim before a sale commenced. Hearings for the claim issue begin in court on Thursday. The decision on whether US Steel is owed $2 billion in debt or if the amount is an equity investment, is expected to have an impact on the restructuring process. If US Steel prevails, its claim will be at the forefront for settlement.

US Steel has pushed for a part in the sales review process as well as asking that liquidation of the company be considered. USW workers want US Steel barred from the sales process since they are now competitors. The USW also expressed concern that US Steel was behind the rush to restart the sales process.

Trevor Harris, Director of Government and Public Affairs at US Steel Canada, disagrees with the USW’s claim that the Sale and Investment Solicitation Process (SISP) is being rushed.

Harris said in an email to SMU, “When we received approval to proceed with our Independent Business Plan this past October, U. S. Steel Canada made a commitment to the Court and our stakeholders that we would look to run another sale process in either late 2015 or early 2016. The motion that was approved by the Court follows through on that commitment and will have us launch a new SISP in the coming weeks.”

In the court documents, US Steel Canada addresses the issue of US Steel directly: “Despite assertions to the contrary, USSC is not seeking to commence the proposed SISP because of a veiled threat of liquidation from USS.”

The US Steel Canada arguments for the restart of the sales process include:

“(a) failure to commence the SISP now may jeopardize the ability of a potential purchaser to participate in the annual automotive contract negotiations for 2017 which take place in the third quarter of each year;

(b) significant operational decisions and commitments regarding the purchase and future delivery of coal and iron ore (which will impact USSC’s operations in 2017) are made in the second half of 2016.”

(c) the timeline proposed in the SISP complies with the SISP related milestones contained in USSC’s DIP financing agreement with its DIP lender

(d) USSC’s financing (if both extensions are utilized) expires on December 31, 2016. Implementing the SISP now increases the likelihood of achieving a successful transaction prior to the expiry of its DIP financing; and

(e) a court-approved process is needed at this time to bring structure to the ongoing effort to find a restructuring solution and govern bidder related activity to ensure fairness and transparency.”

Ken Rosenberg, attorney for the USW, commenting on the court’s approval of the SISP said, “The language we’ve been able to work out will address our concerns and the Concerns of US Steel.”

The timeline for the SISP is as follows:

1) Hearings regarding the USS claims are scheduled to begin next week.
2) Formal notice of the SISP and “teaser letters” will be sent to known potential bidders no later than February 1, 2016.
3) Non-binding Letters of Interest must be submitted by potential bidders no later than February 29, 2016.

US Steel Canada also received an extension of creditor protection to April 29, 2016.