U.S. Steel Canada is expected to lose more than $262 million by Sept. 11, when its current creditor protection expires.
In his latest report, court-appointed monitor Alex Morrison examines financial results from April 1 to the end of June, and looks ahead to the end of the year.
It's not a pretty picture from either viewpoint as the company continues to pile up losses because of general weakness in the steel market.
"Steel market conditions remain challenging as reflected by pricing for hot rolled coils, which is the basic input to many steel products, including the oil and gas markets and cold-rolled steel facilities," he said. "The dramatic fall in the price of oil has negatively impacted the price of steel, as the oil and gas sector is a major consumer of hot rolled steel."
So far in 2015, Morrison said the company has lost $43.2 million on its operations — $11.5 million in Hamilton and $31.7 million on the Lake Erie Works in Nanticoke. During the April-to-June quarter the company posted losses of $3.9 million in Hamilton and $21.7 million at Nanticoke for a total of $25.6 million.
Morrison reported the former Stelco started off the April-to-June quarter with cash-on-hand of $174.8 million and burned through almost $51 million of that, leaving $124 million.
Through to end of the year he estimated the company will spend $92.3 million more than it earns in Canada, chiefly to stock up on raw materials before the St. Lawrence Seaway freezes over for the winter.
The difference will come from a $185-million line of credit provided by its parent company.
Whether it's U.S. Steel of Pittsburgh or a hedge fund called Brookfield Capital Partnersthat provides that money will be decided in a court hearing set for Friday in Toronto.
The American parent firm is threatening to shut down that line of credit – called debtor in possession or DIP financing – on allegations U.S. Steel Canada has failed to live up to some loan conditions, which the Canadian company rejects.
To get past that threat, USSC will ask a judge to replace the American firm with one of the hedge funds that helped Stelco with its tangled 2004-06 restructuring, Brookfield Capital Partners Limited.
In his report to the court, Morrison recommended approving the change in lenders.
Although the Canadian company "has never had to draw on the USS DIP facility, its availability has been an important stabilizing factor during the (restructuring) process which has enabled USSC to be able to retain the support of its customers, suppliers and employees during the restructuring," he wrote.
But as it continues with the sales process, "USSC has had to carefully consider the potential impact of continuing with USS as the DIP lender in light of the fact that USS, in addition to being USSC's ultimate parent is also a supplier, a service provider and a customer for USSC as well as a potential participant in the (sales process)."
Morrison said while Brookfield's interest rate is higher, the overall package is better.
Source: Hamilton Sepctator