Overview of Proposal for Restructuring Stelco
To help facilitate the restructuring of Stelco, (the operating name of U.S. Steel Canada Inc. effective December 2, 2016), which remains in court-supervised creditor protection proceedings under the Companies' Creditors Arrangement Act (CCAA), Ontario has worked closely with the company, the union, the salaried employees and other affected parties to save jobs, protect pensions and support economic development in the Hamilton region while ensuring environmental protection.
In September, Ontario and Bedrock Industries Group LLC (Bedrock) signed a Memorandum of Understanding (MOU) to facilitate the restructuring of Stelco. The MOU sets out a framework to support an acquisition proposal from Bedrock and outlines the province's undertakings to advance the restructuring.
Today, Stelco announced that it has entered into an agreement with Bedrock to support a plan of arrangement for the restructuring of Stelco and is seeking court approval to move forward and finalize the terms. This step also allows for the elements of the restructuring and MOU to be made public. The restructuring has the support of United Steelworkers Local 8782 and 8782(B), United States Steel and Ontario, all subject to various conditions.
Bedrock would continue steel operations and ensure that the approximately 2,100 existing jobs continue at Stelco's Hamilton and Lake Erie facilities.
This transaction ensures that Stelco's four main pension plans -- which are underfunded and would otherwise face wind-up at reduced benefits levels -- remain in place, providing benefits for service accrued prior to the transaction. Pension coverage for future service would be addressed in separate agreements.
The framework also includes provisions to strengthen the funding of the pension plans. The new company would make various lump sum and ongoing contributions, resulting in up to $430 million of new funding for the pension plans, $160 million of which is guaranteed directly by Bedrock. These payments would consist of:
- $30 million upfront payment
- $20 million payment before Bedrock is to be paid a dividend
- 10 per cent of the new company's free cash flow annually, with a minimum payment of $10 million per year for the first five years and $15 million per year for the next 15 years
- 10 per cent of all dividends or profits from any future sale of the company by Bedrock
- An interest in the land trust (discussed below)
- A share of any tax savings resulting from Stelco's tax losses
While the new company is committed to making contributions to the pension plans, it is not obligated to fund any deficit in the pension plans for service accrued prior to completion of the restructuring transaction.
Pension plans would continue to benefit from coverage by the Pension Benefits Guarantee Fund, administered by the Financial Services Commission of Ontario (FSCO). A qualified third party, appointed by FSCO, would serve as the administrator of the pensions plans.
Other Post-Employment Benefits
Active and retired employees would also continue to receive other post-employment benefits (OPEBs), including health, dental and life insurance, which would be administered through a new trust or corporate entity. The company would be obligated to make certain contributions toward the OPEBs.
To create additional value for pensioners, the lands would be transferred to a land trust governed by pensioners through a process to be established by them. These lands would be sold, leased or developed, with proceeds going to fund the pension plans and the OPEBs entity. Ontario would provide a fully secured loan of $10 million to the land trust to support the start-up operations. The province would also provide a loan of up to $66 million, fully secured, to the OPEBs entity to ensure there is sufficient funding available to fund the OPEBs while the land is developed and the new company is established. Both loans would be fully secured against the land and other assets.
The province has agreed to support the development of the industrial lands in a manner that protects the environment as well as benefits the Stelco retirees through the creation of a land trust, governed by the retirees.
As part of the transaction, the province will receive US$61 million, or about C$80 million, to cover costs that may be incurred by the Ministry of the Environment and Climate Change (MOECC) in connection with environmental conditions on the land. With this financial assurance, MOECC would provide a release of certain legacy environmental liabilities associated with the Stelco lands. Any portion of the financial assurance that is not required by MOECC will be distributed for the benefit of Stelco's pensioners.
The new company would be required to comply with all environmental laws and regulations, fund any environmental baseline testing and monitoring costs, and work with MOECC, to develop an environmental management plan to ensure that the environment is protected while steel operations are ongoing.