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Court deliberates over Stelco
by Laura King in Toronto3 November 2005
TheDeal.com Copyright 2005, The Deal, LLC. All Rights Reserved

The Ontario Court of Appeal has reserved its decision on whether to throw out two financing deals that form the crux of the restructuring plan for insolvent steelmaker Stelco Inc.
The three-judge panel said Wednesday, Nov. 2, it will rule promptly, but Stelco CEO Courtney Pratt said the company must make changes to the restructuring plan to satisfy the bondholders who oppose the deal.
Meanwhile, Stelco announced that it is selling three of its units to Mittal Steel Co. NV. Stelco creditors are to vote on the its restructuring plan on Nov. 15 but a group of bondholders, including some U.S. hedge funds, say they'll veto it.
The group opposes two deals included in the plan. The restructuring plan requires approval by creditors holding at least two-thirds of the money owed, or about C$640 million ($545 million).
"We shouldn't kid ourselves,'' Pratt said outside court. "This plan is not going to get accepted.'' Stelco has been under creditor protection since January 2004. Justice James Farley of the Ontario Superior Court approved its restructuring plan on Oct. 4. It includes a deal with the Ontario government for a C$100 million loan that is contingent on Stelco making a C$400 million down payment on its C$1.3 billion pension solvency deficit, which the bondholders say is excessive. Under that deal, $75 million of the C$100 million loan can be forgiven and the province could end up owning 8% of the Stelco.
A second deal calls for Brascan Corp.'s Tricap Management Fund to provide C$450 million in financing but the bondholders say fees associated with the deal are too high. The bondholders say Stelco didn't actively seek competing proposals.
Tricap could end up with a multimillion dollar breakup fee if the deal collapses. Lawyers for bondholders argued Wednesday that Farley shouldn't have approved the restructuring plan knowing that the bondholders intend to vote against it.
Bondholders would be paid about 66 cents on the dollar under Stelco's restructuring plan, which would be more than creditors of Bethlehem Steel Corp. and other U.S. steelmakers received after restructuring. Stelco shareholders would end up with nothing.
Stelco is aiming to exit creditor protection by Dec. 31. Stelco said it has signed a letter of intent with Mittal and that the sale hinges on the negotiation of a definitive agreement. It didn't disclose a price for the sale of Norambar Inc. in Contrecoeur, Quebec, Stelfil Ltée. in Lachine, Quebec, and Stelwire Ltd. in Ontario.
Stelco announced early in its restructuring process that it would sell the divisions, which it considers noncore, in order to focus on its integrated steel business.