When the Stelco Inc. restructuring case goes before the Ontario Court of Appeal on Wednesday, the three justices may find themselves doing a double-take when they scan the list of who supports the company's reorganization plan and who opposes it.
The narrow issue the appeal court will examine is whether Mr. Justice James Farley of the Ontario Superior Court had the authority to allow the plan to go to a vote.
Their heads may snap up when they see Stelco linked arm-in-arm with the United Steelworkers union and five of six USW locals arguing that Judge Farley was right and the plan is a good one.
It's not as if USW president Leo Gerard is spending his spare time teaching Stelco chief executive officer Courtney Pratt the words to Solidarity Forever.
But the union-company alliance against the bondholders and a group of shareholders is a remarkable turnaround from most of the restructuring when the USW and Stelco management were at each other's throats.
It's just one of the flip-flops that illustrates how wild the 21-month roller-coaster ride has been and has observers of the restructuring under the Companies' Creditors Arrangement Act shaking their heads.
"This case has had more twists and turns, more strange developments and fits and starts than any other major CCAA case in Canadian history," says Bruce Leonard, a Toronto lawyer who has followed the Stelco restructuring closely.
"A normal person looking at the Stelco reorganization would wonder under what rules this game was being played," says Mr. Leonard, who heads the International Insolvency Institute.
Here's a partial list of some of the twists and reversals of position:
Stelco went into CCAA protection in January, 2004, pointing to how its U.S. rivals had lowered their costs by cutting wages and wiping out legacy costs. It recently reached a deal with USW Local 8782 at the Lake Erie Works that increases wages by 8 per cent to 11 per cent over three years and gives workers a $3,000 signing bonus;
The company said in April that a financing plan proposed by Brascan Corp. restructuring fund Tricap Management Ltd. was dead in the water. Tricap now is the financial backer of the restructuring plan that will go to a vote of creditors on Nov. 15;
The USW argued initially that the company was insolvent and CCAA was unnecessary and went as far as the Supreme Court of Canada to argue its case. Now it supports the company's plan.
The union established seven principles for the restructuring, one of which was that non-core subsidiaries stay with Stelco. The plan it's supporting calls for the sale of non-core units.
The Ontario government said it would provide no money to help bail out Stelco's $1.3-billion pension deficit. Its deal with the steel maker provides a $100-million loan, $75-million of which can be forgiven and the province could end up owning 8 per cent of the company.
Two shareholder representatives, Roland Keiper and Michael Woollcombe, were successful in a bid to join Stelco's board. Then they were kicked off by Judge Farley, reinstated by the court of appeal and then resigned in August.
The most important shift in position is the one that has company management and the union in solidarity threatening the creditors that the plan they will vote on in two weeks represents the best deal they're going to get.
The bondholders will receive 66 cents for every $1 of debt, which by far outstrips what creditors picked up when Bethlehem Steel Corp., LTV Corp., and other U.S. steel makers were restructured.
"That's pretty good," Mr. Leonard notes.
Nonetheless, the bondholders insist they will defeat the plan, despite a warning from Mr. Pratt that if the plan is defeated, the likely outcome is liquidation of Stelco's assets that will give them between 17 cents and 33 cents for every $1 of debt.
Liquidation could also leave the province on the hook for $700-million in pension payments because the massive Hamilton Works would be sold piecemeal, according to an analysis by the court-appointed monitor overseeing the case.
A decision in favour of the bondholders by the court of appeal on Wednesday could send the stakeholders scurrying back to the negotiating table.
The bondholders might have considered 66 cents a good deal, had they not been promised in two previous restructuring plans that they would be reimbursed in full, including accrued interest.
Those promises were based, however, on one factor that has played havoc with the restructuring almost since day one. That's the surge in the price of steel.
Shortly after Stelco was granted CCAA protection, demand from China sent the price of steel surging and helped generate the two most profitable consecutive quarters in the company's history.
That helped send Stelco's share price soaring to above $4, a staggering development for a company in bankruptcy protection.
It also helped lead Stelco to the promises it made to the bondholders and even to telling equity holders that there was some value for them, also unheard of in this kind of situation.
But Stelco couldn't make a deal with its stakeholders when the price of steel was high. After steel prices started skidding earlier this year, the company lowered its outlook for prices and shipments for the third and fourth quarters of 2005 and its revenue projection for 2006.
That sparked the resignations of Mr. Keiper and Mr. Woollcombe.
But it also led to the scenario where the bondholders are staring at 66 cents instead of $1 and also angry about a plan that gives them new equity in a recapitalized company, but no say on who gets appointed to a new board of directors.
© The Globe and Mail
Only GlobeinvestorGOLD combines the strength of powerful investing tools with the insight of The Globe and Mail.
Discover a wealth of investment information and and exclusive features.
