Pension issues and doubts about plan for land sale stumbling blocks in restructuring negotiations

Unresolved pension issues and doubts about the viability of a land sale plan to generate revenue for retirees are key stumbling blocks in a massive restructuring deal for Stelco that would take the company out of creditor protection.

The plan, in part, calls for the steelmaker’s property to be made into a land trust under provincial authority, with Stelco becoming a tenant on about a third of the 325 hectares.

Then the unused land would be remediated and sold or leased to raise funds to help Stelco pension plans stay solvent in the face of hundreds of millions of dollars in unfunded liability, as well as providing some funding for health care benefits for retirees.

But union officials, who are in contract negotiations with ownerin-waiting Bedrock Industries, as well as Hamilton’s Mayor Fred Eisenberger, are skeptical the land can be turned into something of value in the short term. Retirees are fearful of hanging their fortunes on the scheme.

According to a report prepared for the United Steelworkers Local 1005 executive: “If the (pension) plan does not make 9-10 per cent per year and we do not make lots of money from the land leases and sale of land ... we will be in big trouble.”

Eisenberger says “I don’t see a private sector player coming to the table under the circumstances.

“It’s not viable . ... This won’t do it. We don’t think the plan causes the kind of benefit that we would like to see as a city and for providing value for pensioners.

“It doesn’t help the pensioners. It doesn’t help the city in terms of future jobs. It’s a fire sale approach that doesn’t maximize the value for the long term.”

Another outcome of the land trust arrangement is that Stelco would be sheltered from environmental liability for historical pollution, because it would no longer be the owner of the property.

McMaster University business professor Marvin Ryder says the mitigation of Stelco’s pension responsibilities and the elimination of its environmental liabilities will “give Bedrock an asset that would be easier to sell in a few years.”

Municipal taxes could be less as well. Mike Zegarac, the city’s head of finance, says Stelco has applied for a reassessment of its 2017 taxes. And under the land trust arrangement, in which Stelco is a tenant rather than a property owner, there could be another reassessment because of the changing circumstances.

Stelco wouldn’t pay any property taxes under the Bedrock plan. The land trust would recoup its tax payments under a lease agreement.

Stelco is on the hook for more than $6 million in local taxes annually, although the court allowed it to hold off payments during the past 18 months, while the courtsupervised restructuring process continues. If the Bedrock deal goes through, the new company will be required to pay more than $9.5 million in back taxes, interest and penalties to the city.

Meanwhile, the court-appointed monitor in the restructuring process released financial results Tuesday stating that steel prices have rebounded to about $650 per ton, compared to $469 per ton last October and nearly $700 a ton in May 2014.

But the report cautioned that “market pricing remains volatile” and “global steel markets continue to face significant challenges.”

Ryder says: “You can definitely see the roller-coaster ride it has been . ... I would not want to be the one forecasting where the price will be a year from now.”

The report raises red flags about increasing protectionism in the world and “significant uncertainty amongst the Canadian steel industry regarding potential changes to Canada’s trade relationship with the United States. This stems from the current U.S. administration’s possible expansion of ‘Buy America’ provisions…”

The report said the company had $236.8 million in cash, a bone of contention for pensioners who had health care benefits cancelled in the past 18 months by the court, pending the outcome of a restructuring deal.