By Frank Pingue
TORONTO (Reuters) - Stelco Inc. and the United Steelworkers of America hammered out a deal on Thursday that gives a unit of Brascan Corp. permission to be the union's financial adviser.
The agreement, presented to the court overseeing Stelco's restructuring, means Brascan's Tricap Management Ltd. can perform due diligence on the insolvent company and examine the books of Canada's biggest steelmaker.
While it's a sharp turnaround from last week when Stelco rejected the C$1.35 billion ($1 billion) financing plan and labeled it as one it would not accept or deal with, the steelmaker said the proposal will face a lot of difficulties.
"It doesn't mean that by saying we'll talk about it that we believe it's necessarily a doable transaction, but it's something that we have to talk about and agreed to talk about," Courtney Pratt, Stelco's chief executive, told reporters outside the courthouse.
"We have a situation where both parties agree on a way to go forward. We're both agreeing that all other stakeholders should be involved, and, on that basis, it's a great way to move forward."
Stelco's bondholders, who hold a critical vote in the capital raising process, opposed the plan in court and said it would waste the company's time and do nothing to make Stelco more competitive or lower its costs.
Pratt said the agreement with the union, which should pave the way for Stelco exiting court protection, is a stepping stone for the company to reach a solution that meets everybody's interest.
"We've taken a very important, very big and very positive step today, but no one should kid themselves that we don't have a long way to go," said Pratt.
"We've obviously tried to create a forum where we can have the kind of discussions that we need to resolve this, but we still have to come to a conclusion that everyone can buy into."
The steelmaker, which hopes to exit creditor protection by late June or early July, said at this stage in the process it's critical for both sides to start working together to come up with a solution.
Stelco expects to outline its own proposal by May 12 and will hold discussions with all its stakeholders.
The company entertained takeover offers from October to February, but when they did not deliver the value it had hoped for it decided to embark on its own capital raising process.
Tricap's plan includes a C$500 million contribution to Stelco's pension plans, C$100 million to repay its creditors, while the remaining C$750 million could be used for its capital expenditure program and general corporate purposes.
The deal reached between Stelco and the Steelworkers early on Thursday includes a promise from Stelco not to file any restructuring plan before May 12 and to meet the union before filing such any plan.
In turn, the Steelworkers union, which represents about 5,000 of Stelco's 8,900 workers, agreed not to go on strike before May 12 or to disrupt Stelco's capital raising process.
"I think all the parties involved can sit down, get some forward momentum, and we're interested in seeing some forward momentum," said Bill Ferguson, president of the USWA local at Stelco's Lake Erie plant.
"Tricap will be doing due diligence and, together with the company, we are going to try and work through and come to an agreement."
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