Stelco bidder KPS drops out over pension funding
Source says hedge fund couldn’t reach terms with province
An American hedge fund that planned to merge Stelco and Algoma into a new Canadian steel firm has pulled out of the bidding.
A source familiar with the situation said KPS Capital Partners, of New York, dropped its bids for both companies over its “inability to come to an agreement with the province.”
Ontario has been closely monitoring the restructuring of both Algoma and Stelco because of concerns over the state of their underfunded pension plans.
KPS had been chosen as the top bidder in the Algoma sales process and was said to be a leading bidder for Stelco as well.
The action came as unionized workers and retirees of the former Stelco met in Hamilton to call for a federal public inquiry into the corporate restructuring law they say fails to protect workers and pensioners.
The inquiry call is being led by the United Steelworkers locals that speak for workers at the Hamilton and Nanticoke plants of U.S. Steel Canada, the former Stelco.
Gary Howe, president of Hamilton’s Local 1005, said a law that allows health benefits to be taken from retirees while the corporation sits on a huge cash reserve has to be changed.
“Right now it’s all about greed. Greed drives this process. It’s all about money,” he said.
Bill Ferguson, president of the Lake Erie Works local, said the basic flaw in the Companies’ Creditors Arrangements Act is shown by a court decision making U.S. Steel, of Pittsburgh, the largest secured creditor in Stelco’s restructuring while pensioners are left at the back of the line to be paid.
“We’re an unsecured creditor in the eyes of the law, right now,” he said. “The court has to recognize that we are the secured creditors because we put our lives into that mill.”
The debt decision is currently under appeal.
Hamilton East-Stoney Creek New Democrat MPP Paul Miller will draft the inquiry petition and present it to the federal government with the help of local Liberal MPs Bob Bratina and Filomena Tassi, and NDP members Scott Duvall and David Christopherson.
“The current law favours the corporations and the lawyers. The lawyers are really benefiting from this, making small fortunes for themselves,” Miller said. “The law should protect the workers who put their hearts and souls and sweat into these mills.”
“The way it is now, (restructuring) is like the Wild West, the rules are being made up as we go along,” said Hamilton Mountain MP Duvall.
U.S. Steel Canada has said it is spending $3.5 million a month of professional fees for its restructuring. That’s a total of $77 million since filing for protection in September 2014.
In a terse news release on Thursday, Algoma said the remaining lenders in the consortium KPS had once led “have indicated that they remain committed to a going-concern outcome for Algoma and all of its stakeholders, and to closing the transaction contemplated by the Asset Purchase Agreement as soon as possible.”
One vocal stakeholder is the United Steelworkers. The union’s support is required for a successful bid and leaders have made it clear their price is jobs, pension funding and health benefits for retirees.
In its own news release, the union called the KPS pullout “the latest twist in a mismanaged Sale and Investment Solicitation Process” that had already eliminated the one bidder that met the union’s requirements in favour of the hedge fund bid that refused pension topups in favour of returns for debt holders.
“The USW understands KPS could have brought a lot to the table,” said Marty Warren, the union’s Ontario director. “But what they bring comes at a very steep price for the workers. It is hard for a local union to recommend to its members that they pay such a high price when there are other serious bidders out there who appear to be offering materially better terms.”
The union’s preferred bidder is Essar Global, of India. It has promised to fully fund pension plans, restore employee health benefits and preserve jobs. It was eliminated by the debt holder-led process over concerns it lacked the financial resources to complete a deal.
Essar is also said to have been eliminated from the Stelco bidding process for the same reason.
The union said it will bring a motion to court to have the bidding process reopened.
“There is still a lot of interest out there and a lot of goodwill among a number of stakeholders to get to a deal that has a reasonable possibility of closing. The Steelworkers are certainly willing to be involved,” Warren said.
In Hamilton, Howe echoed the position Essar remains the best bid for Stelco.
“The best bidder is a steel company and they are talking about the things that matter to us, like making steel in Hamilton,” he said. The Algoma and Stelco pension plans have a combined deficit of more than $1.2 billion.
The current law favours the corporations and the lawyers. HAMILTON EAST-STONEY CREEK MPP PAUL MILLER