U.S. Steel Canada's financial adviser says a controversial plan to sell its troubled Hamilton and Nanticoke plants is the best chance the company has to squeeze value from the assets.
In an affidavit going to Superior Court on Monday, Rothschild Inc. managing director Homer Parkhill also says that fears the plan will be used to allow the American company to skim the cream off its Canadian assets are simply wrong.
At stake is a footnote in the proposed sales plan allowing the ponderously named Sales and Asset Restructuring/Recapitalization Process (SARP) to be frozen if any potential bidder makes settling its claims against the company part of its bid price.
With its American parent already the largest secured and unsecured creditor with claims of more than $2 billion, opponents fear that clause will be used to slow the sale of the Canadian company to the point that other bidders drop out. This could enable U.S. Steel to buy choice assets without having to turn over any cash for other creditors or its underfunded pension plans.
Parkhill said the "credit bid clause" would only be triggered if a final bidder asks for it.
Having spent 17 years in the business of helping struggling companies restructure, Parkhill added "In my professional opinion, the Credit Bid Clause is practical and appropriate in the circumstances and will have no material effect upon the willingness of other interested parties" to try to buy pieces of the formal Stelco.
"Without a mechanism in the SARP to address this potential issue, USSC's ability to maximize value for its stakeholders may be hampered and there could be delays in determining the direction of the applicant and the implementation of a solution," he added.
The plan has also been supported by the court-appointed monitor. In his most recent report Alex Morrison said the proposed process "is well structured and will provide for a robust canvassing of sale, restructuring and recapitalization options for the benefit of USSC and its creditors and other stakeholders."
Specifically, he said the process allows enough time to canvass potential bidders for the assets, gives bidders a chance to express non-binding interest, is flexible and will be "appropriately managed" by himself, chief restructuring officer Bill Aziz and Rothschild.
The process is to be launched no later than April 6, with ads in local newspapers, including The Spectator.
Morrison said the footnote that raised objections was demanded by U.S. Steel as a condition of providing an emergency line of credit for the Canadian company — money USSC has yet to use.
He added the language of the requirement was settled through negotiations between the American and Canadian companies "to ensure that this provision does not favour any particular bidder or otherwise compromise the integrity the SARP. The monitor does not expect that the inclusion of the Qualified Bids Footnote as it is currently drafted will deter bidders or otherwise have a chilling effect on the SARP process …"
The objections, he added, "are theoretical at this juncture," and he can always ask the court to address any adverse effects that do appear.
In its submission, USSC argues that starting the sales process now "is both necessary and appropriate," to give it enough time to run a fair process.
Pittsburgh-based U.S. Steel said in its court document it will bid on pieces of the Canadian unit and its bid will likely include a credit component.
Morrison's report also noted the Canadian business continues to face financial challenges. So far in 2015 it has reported a net loss on operations of $65.4 million US but has enough cash on hand to continue operating without drawing on the $185 million US credit line offered by its American owner.
U.S. Steel Canada has been under court-supervised creditor protection since September after pleading poor business conditions, years of losses and the high cost of topping up its pension plans was bringing the company to its knees.
The provincial government, speaking for the pension regulator, the United Steelworkers along with its Hamilton and Lake Erie locals, and a group of non-union retirees, are all opposing the plan.
Source: The Hamilton Spectetor
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