Steel Mills

US Steel Trying to "Earn the Right to Grow"

Written by Sandy Williams

The USW and Ontario officials are determined to not go down easily in the fight to keep US Steel Canada alive. The $185 million that US Steel is loaning to US Canada in DIP financing is under hot dispute by union members and the province. The DIP (debtor-in possession) filing has been called “a thinly veiled loan-to-own strategy” that will give US Steel first rights as bidder for Lake Erie Works.

Ontario countered with its own filing that notes that US Steel told US Steel Canada that it was not permitted to borrow from any other lender that would rank ahead of US Steel in debt repayment. The Ontario filing states that US Steel Canada “should be able to consider and advance all restructuring alternatives for the benefit of its stakeholders without its controlling parent and sole shareholder restricting those alternatives at the outset of the CCAA proceedings.”

If US Steel wants to keep Lake Erie Works (or Hamilton) it must purchase it after the restructuring. A big loan owed to US Steel would be a nice negotiating item in a potential purchase.

Since US Steel controls the order books for US Steel Canada there is the also the question of how profitable the mills will be in the interim if the underlying goal is a low price purchase price for the assets.

In addition, US Steel must pay Ontario back a $150 million loan by the end of 2015 and has obligations to US Steel Canada’s pension fund. If the required pension payments by US Steel are not made, the province could be responsible for nearly $400 million through the Pension Benefit Guarantee Fund.

USW Local 1005 says the bankruptcy is a ruse and questions how the Canadian operations, “an integral part of the parent company and fully owned by shareholders of U.S. Steel equity” can be deemed bankrupt when US Steel itself is not. In the Union’s Information Update #26, it writes, “No reasonable person can say that US Steel is bankrupt. If it wants to leave Canada, it should do so honourably and not in the manner it seems to be proposing—which is to use the bankruptcy court in such a fraudulent way. If it feels no profit is to be made in Canada, why does it not sell its assets as best it can and settle its debts and obligations in a responsible manner?”

Past US Steel contract negotiations in Canada resulted in multiple lockouts at Hamilton and Lake Erie Works that forced the early retirement of workers and damaged the profitability of the mills. In the factum filed by US Steel the company states, “Unfortunately, many of the problems that plagued Stelco continued to confront USSC after the restructuring and sale, such as competitive cost disadvantages including high cash funding costs in respect of pension and other retirement benefit obligations, as well as uncompetitive labour costs and related labour interruptions.”

At the same time it announced the bankruptcy filing for US Steel Canada, US Steel also said it would dispense with further expansion at its iron ore pellet operations in Minnesota and its carbon alloy facilities at Gary Works. The company also sold 70,000 acres of timber land in Alabama for $56.6 million.

CEO Mario Longhi said the actions are “another step in our transformation to earn the right to grow.” As of August 31, 2014, US Steel’s cash balance was $1.4 billion.

US Steel Canada has been divorced from its parent company and due to decisions made by US Steel when they purchased the mill, and then again in the dealings with their workers in Canada has decided that the promises made were perhaps in error (our words not theirs).

“These strategic decisions allow us to redirect funding to projects to further develop Advanced High Strength Steels for our automotive customers, premium connections for our energy market customers, and capital expenditures to update and modernize our operations,” said Longhi.

One of those projects is an investment of $187 million in upgrades to its Mon Valley Works operations.

A union leader made the following comment on US Steel’s spending, “For someone who tells people and courts they are broke they sure seem to find money to spend. Seems very suspicious. Do you think they are lying? It isn’t that they haven’t lied before.”

The company promised last week that it will keep its headquarters in Pennsylvania after its lease runs out at the US Steel Tower in Pittsburgh in 2017. Just to make sure that US Steel wouldn’t leave the state, the Pennsylvania Department of Community and Economic Development awarded US Steel grants worth $30.7 million that will be used for the rehabilitation project at Mon Valley Works.

Although the company promised to make good on its loan from Ontario and honor its pension responsibilities, with the CCAA filing there is really no assurance that those promises will be kept. On top of all of this, the Hamilton Works union contract expires later this year.

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