U.S. Steel to prove debt claims

27 November 2015

U.S. Steel has won a chance to get its debt claims against the former Stelco proven ahead of others.

In a decision released late Wednesday, Justice Herman Wilton-Siegel swept aside objections from workers and the provincial government.

He held that the starting point for deciding the issue is whatever action gives the best chance of finding a restructuring solution for the company.

"It cannot be disputed that a settlement of the USS claims would go a considerable way toward a determination of all claims," he wrote.

The Pittsburgh-based steel company claims it is owed more than $2.2 billion by its struggling Canadian arm. It says uncertainty over that debt is crippling efforts to sell the Hamilton and Nanticoke steel mills as going concerns.

"In this case the objecting parties have not provided any persuasive evidence that a determination of the USS Claims, in particular the validity of the secured USS Claims, would not provide some certainty that would assist prospective bidders," Wilton-Siegel wrote.

The judge also ruled that determining the USS claims could affect voting on a final restructuring plan, the distribution of assets, appointment of a receiver or liquidator of the company or for a proposed purchase.

Chief restructuring officer Bill Aziz said in an affidavit supporting the motion that not settling the USS claims has already convinced one potential buyer not to bid for the Stelco mills.

Also, Aziz said, it could hobble any future effort to sell the plants by making it unclear how much money might be available to settle pension and health benefits claims.

"A buyer of this business is concerned about labour relations and starting off on the right foot with its employee base and wants to maximize what is available for them," he said.

"They need to understand based on their bid how much money from their bid is available for those parties as opposed to how much is going to go to USS, and the claims determination is fundamental to that."

U.S. Steel Canada has been under creditor protection since September 2014 after claiming it was buckling under the weight of bad business conditions and the cost of top-up payments to seriously underfunded pension plans.

Since then, the American parent company has filed 14 claims alleging it is owed more than $2.2 billion by the former Stelco. That claim amounts to 90 per cent of all secured claims and half of all unsecured claims against the company.

The USS claims are opposed by the province, the United Steelworkers, two of its locals and a group of active and retired salaried employees.

They allege — among other arguments — that: the

•The USS claims are really an effort to recover the cost of buying Stelco in 2007.

• The security given to USS for those claims "should be invalidated on the grounds of a fraudulent preference."

• Uncertainty over potential debts means nothing to possible buyers of the mills — their only concern is whether the company can be operated profitably in the future.

Wilton-Siegel ordered that a trial date for the debt issue be set "as soon as reasonably possible."

But he acknowledged that's not likely before the end of January.

To speed the issue along, he suggested issues in the trial be restricted to the validity of the USS claims and security.

Aziz has been ordered to hold a case conference to look at that and set a date for the trial.

In a related development, U.S. Steel Canada has filed documents asking for an extension of its creditor protection order to Jan 29. The current order expires Dec. 10.

In an affidavit supporting the motion, USSC president Mike McQuade said the extension is required to give the company time to develop a new sales process. That process is expected to start by May 31 with binding offers due Oct. 31.