Stelco restructuring hits another delay
Bondholders balk at plan created in weekend talks Judge sets today as new deadline to reach a deal
Stelco Inc.’ s odyssey through restructuring, which is now in the 23rd month, took another turn yesterday when the company submitted a new plan and bondholders immediately requested more time to craft a better one. But Mr. Justice James Farley, who appears to be tiring of wandering legal proceedings, repetitious legal arguments and no resolution, said he would extend court protection for the company from creditors by 22 hours, until today, and then decide on additional time.
“I would think stakeholders with a financial interest in this matter should refrain from playing chicken,” Farley told more than two dozen lawyers in court. “ They should do what is right rather than what is completely self- serving.”
Farley’s remarks suggested that stakeholders should resume negotiations immediately and quickly reach a deal to assure support on Friday or face a court- imposed solution.
Stakeholders’ lawyers, as they left the courtroom, appeared somewhat at a loss as to how much could be accomplished by today.
Stelco and its stakeholders worked around the clock during the weekend to produce an amended plan yesterday for a scheduled creditors’ vote on Friday. But a bondholders’ representative said the new plan contains significant changes that leaves control in the hands of Tricap Management, the restructuring fund of Brookfield Asset Management, formerly known as Brascan Corp. Lawyer Richard Orzy, who represents an informal committee of bondholders, said the amended plan means creditors, including bondholders, will take “ a haircut” on their debt and not get fair equity in return.
“ It is largely flawed and unacceptable,” said Orzy. “ This plan is a major step backwards.”
Orzy, who described the plan as “ a forced takeover,” charged Stelco and Tricap colluded during the weekend to revise the restructuring plan and then press for a vote. The plan features $375 million in bridge financing from Tricap and a $ 150 million loan from the Ontario government. During the past week, however, stakeholders negotiated a $ 137.5 million “ cash pool” with funding from Tricap and other new- equity holders. The plan would allow unsecured creditors to get cash worth 55 per cent of the face value of notes the creditors would have received instead of about 37 per cent. The plan would leave Tricap, Sunrise Partners LP and Appaloosa Management LP with almost 90 per cent of Stelco’s new equity. Tricap would own slightly less than 40 per cent.
Existing shareholders would receive nothing under the plan. The company says it doesn’t have enough of value to pay off creditors, let alone have something left for shareholders. The proposed cash pool increases what creditors would receive in cash, but reduces their ability to exchange debt for equity.
Courtney Pratt, Stelco’s chief executive officer, told reporters outside court he understands that the bondholders want to retain the option of taking a combination of cash or equity.
Pratt said it is time for a vote, although it is not clear sufficient support exists. Approval of a plan needs support from creditors holding two- thirds of the company’s debt. But lawyer Orzy, whose bondholder group holds enough debt to kill a deal, told Farley the group needs until early January to canvass potential lenders and formulate a better plan. Orzy said he sees no urgency to pass a restructuring plan because Stelco “ is not on its death bed.” Referring to Farley’s earlier warnings that Stelco could face dire consequences if stakeholders did not reach a deal soon, Orzy said the company wouldn’t go “ splat” now.
Furthermore, he said, Farley’s court deadlines and threats by some lenders to push the company into receivership are not helping the process. When Farley asked if anything ever gets done without a deadline, Orzy responded: “Absolutely.”
In response to another query from Farley, Orzy also said he didn’t know whether some clients are so- called vulture funds that bought bonds recently at distressed prices.