U.S. Steel Canada seeks new restructuring lender

20 July 2015

U.S. Steel Canada says it needs a new lender to back its financial recovery.

In court documents filed ahead of a July 24 hearing, the company said its American parent is threatening to shut down a special line of credit the former Stelco needs to stock up on raw materials before the St. Lawrence Seaway freezes for the winter.

The Pittsburgh-based parent firm alleged earlier this month USSC has breached the conditions of its financing agreement by not providing updated budgets on request. In his letter complaining of that default, lawyer Robert Thornton said U.S. Steel "is not, at this time, exercising its right to terminate its commitment to make any future … advances, it is reserving and preserving its right to do so without further notice to the borrower."

USSC rejects the allegation. In a letter its lawyer said any delay in getting the Canadian company's budget was because the American firm was slow in delivering needed information such as sales forecasts.

To get past that threat, USSC will ask the judge overseeing its creditor protection to replace the American firm with one of the hedge funds that helped Stelco with its tangled 2004-06 restructuring. Brookfield Capital Partners Limited has agreed to provide up to $150 million to USSC on better terms than those offered by the American firm. Those terms include an interest rate of up to 12 per cent, a commitment fee of $4.5 million, a monthly monitoring fee of $150,000, an exit fee of $3 million plus all of its costs.

When USSC sought creditor protection last September, U.S. Steel Corporation agreed to provide $185 million in a special line of credit called debtor in possession, or DIP, financing.

Objections to that plan were raised immediately by several stakeholders, including the United Steelworkers and the Ontario government.

In an affidavit supporting the move, chief restructuring officer Bill Aziz said the switch is a good move because it will give the Canadian company access to the cash it needs while also easing those objections.

Aziz said that, throughout the restructuring, the American parent firm has played the roles of equity holder of USSC, lender, creditor, supplier, customer and potential bidder in USSC's sale process.

"In this regard, over the course of the proceedings so far, there have been several instances where the Applicant required DIP lender approval to take a particular step and difficult negotiations between the Applicant and the USS DIP Lender ensued," he wrote. "On occasion, the resolution that the Applicant reached with USS to obtain the DIP lender's consent resulted in objections from stakeholders to the resolution."

In a news release, the United Steelworkers supported the change in lenders.

"We have previously made our concerns known to the court-appointed monitor that U.S. Steel has had too much control over the restructuring process and potential sale of its Canadian operations," said USW Ontario director Marty Warren.

The company's current protection order runs until Sept. 11

Remaining issues in the restructuring include deciding the validity of $2.2 billion in claims tabled by U.S. Steel, an appeal of a judge's decision not to order the release of the details of a 2011 agreement in which the federal government dropped a lawsuit against the company and the outcome of the process in which USSC seeks to sell its plants. The union has been pushing for the identification of potential buyers.