U.S. Steel files for bankruptcy protection – Steelworkers respond

Labour Day march in Hamilton, 2014

Labour Day march in Hamilton, 2014

Harper Conservatives Enable U.S. Steel’s Latest Blow to Canada

– United Steelworkers –

Fraudulent Bankruptcy Without an Owner

– Rolf Gerstenberger, President, Local 1005 USW –

Local 1005 USW Press Conference

Transcript of Presentation by President Rolf Gerstenberger

August 13 Letter from Local 1005 to U.S. Steel 

August 14 Response from Local 1005 to U.S. Steel’s Self-Serving Restructuring Proposals

An Appeal to the Court of Public Opinion

– Local 1005 USW –

Local 1005 condemns in no uncertain terms this phony CCAA bankruptcy filed by U.S. Steel on September 16. It creates a very serious situation for active and retired Canadian steelworkers and their union, the United Steelworkers (USW), as well as the locals directly involved, Local 1005 USW at Hamilton Works and Local 8287 USW at Lake Erie Works. This phony CCAA filing also directly affects present and former salaried employees of the company, the citizens of Hamilton and their Municipal Council, and the Province of Ontario.

The provincial government is up to its ears in irresponsible deals it cut with U.S. Steel at the time it seized Stelco and which USS is now conspiring to dump on the province and all Canadians. The responsibility of the federal government is all encompassing in this matter since it first allowed the seizure of Stelco under the Investment Canada Act. It has since been signing secret agreements with U.S. Steel to avoid holding it to account for breaking the original agreement and despite mounting evidence that U.S. Steel’s purchase of Stelco in 2007 was part of a North American wide price fixing conspiracy involving seven steel companies including ArcelorMittal. The U.S. courts have already revealed the evidence, which suggest the lockouts and shutdowns of Canadian U.S. Steel production appear to be part of the conspiracy.

Local 1005 USW hereby appeals to the Court of Canadian Public Opinion to see that justice is done in this phony CCAA filing. All the evidence points to a conspiracy to commit fraud. It is unseemly and unconscionable for Canadian courts or governments at any level to legitimate this fraud. We call on all stakeholders affected by this fraud to protest and join with us in opposing it. This includes the organizations of salaried employees, suppliers, environmental organizations, municipal councils, politicians at all levels – federal, provincial, municipal – all political parties at the federal and provincial levels, and citizens and their organizations from all walks of life. It is the view of Local 1005 that this also presents an opportunity for all those involved in lawyering to uphold the integrity of their profession by opposing the use of the courts and legal proceedings and the law to commit fraud.

Enough Is Enough!

Let Us Together Take a Stand in Defence of the Dignity of Labour, Decency, Upright Behaviour and the Right Thing to Do! Do Not Permit Canada to Be Trampled in the Mud by U.S. Steel!

(Information Update, #24, September 18, 2014)


Harper Conservatives enable U.S. Steel’s
latest blow to Canada

The United Steelworkers (USW) union is committed to defending the interests of its members and pensioners affected by U.S. Steel Canada’s application for bankruptcy protection.

“We are extremely concerned about these developments and we intend to do everything we can to protect our retirees and our members,” USW National Director Ken Neumann said following today’s filing by U.S. Steel under the Companies’ Creditors Arrangement Act (CCAA).

“Once again U.S. Steel has left thousands of families and entire communities in limbo. They will have to endure a long and complex court process,” Neumann said. “We will work together with other stakeholders to seek the best outcome for our members and retirees.”

“We will demand that U.S. Steel is held to its obligations,” said USW Ontario Director Marty Warren.

“We remain alarmed by the refusal of U.S. Steel and the federal Conservative government to disclose the terms of their agreement under the Investment Canada Act by which the government approved U.S. Steel’s purchase of Stelco,” Warren said.

“We again call for disclosure of those terms and all other material relevant to the financial situation of U.S. Steel. We’re very concerned about issues such as the apparent mismanagement of U.S. Steel’s pension obligations,” he said.

Since its arrival in Canada, U.S. Steel has instigated unprecedented labour strife – three lockouts in four years – and broken legal commitments on jobs, production and investment.

Stephen Harper’s Conservative government bears responsibility for the hardship U.S. Steel continues to inflict on Canadian communities, Neumann said.

“For six years and counting, the Conservatives have refused to hold U.S. Steel accountable for its string of broken commitments,” he said.

“The Harper government has shown a breathtaking indifference to Canadian workers, pensioners and families who have suffered and will continue to suffer as a result.”

Rather than hold U.S. Steel accountable for breaking its binding commitments on jobs and production, the Conservatives shut down legal proceedings against the company in 2011 and signed a secret, out-of-court settlement containing new promises.

“The Conservatives publicly boasted that their second secret agreement with U.S. Steel was even better for workers and their families. They bragged that this new deal was ‘encouraging investment and employment in Canada,’” said Warren.

“In reality, the Harper government has tacitly condoned U.S. Steel’s behaviour and abandoned thousands of Canadian workers and pensioners who must face the consequences.”


Fraudulent bankruptcy without an owner

While reading the U.S. Steel press release announcing the bankruptcy of its Canadian operations, it suddenly becomes clear that no ownership is involved. This is also reflected in the fact that the USS (X) stock price jumped 12 per cent upon announcement of the phony bankruptcy. Normally in a bankruptcy, equity ownership, either a public stock ownership or private equity, is the first to be hit negatively. Remember the attack on the old Stelco stock and its replacement with new Stelco stock during the 2004-06 bankruptcy. The price of old Stelco stock was reduced to next to nothing.

We know that USS (X) stock is directly connected with the Canadian operations because the executives had to apply for a change in the Ontario pension agreement upon the takeover of Stelco. This had to be done to allow USS (X) stock to continue to pay a quarterly dividend, which it has done to date.

In USS’ September 16 press release, no mention is made of equity ownership. The only debt ownership is said to be the $150 million debt held by the Ontario government. As far as is known, the Ontario government has not applied to have USS put into bankruptcy for failure to pay.

The only other liabilities mentioned are the pension plans and other post-employment benefits of Canadian USS retirees and active workers.

How can a company put only a part of itself in bankruptcy without drawing in the entire company, especially its property assets, equity ownership and outstanding debt? USS has had trouble at both its Gary Works and Keetac mining company resulting in a loss of hundreds of millions of dollars. Does this fraudulent form of bankruptcy mean that USS can declare those two entities bankrupt without affecting the whole company, its other assets, equity ownership and debt?

Hiving off this or that part of the company and declaring it bankrupt without affecting ownership of the whole is a fraud. In this case, hiving off the Canadian operations without affecting ownership is meant to renege on the $150-million Ontario debt, eliminate its responsibilities towards pensions and other post-employment benefits, evade responsibility for environmental cleanup and put downward pressure on the production of steel in North America by shutting the blast furnace in Hamilton permanently and questioning the viability of Lake Erie Works to put upward pressure on steel prices. It is a big attack on Canada and on business relations generally.

This fraudulent bankruptcy means that the Ontario government does not have access to the assets of equity ownership of USS to have its debt made whole. The pension and other post-employment benefits do not have access to the assets of equity ownership and neither do the municipal, provincial and federal Canadian governments have access to meet the demands of environmental cleanup and other issues.

This bankruptcy does not pass the first smell test in that no ownership can be identified. USS executives are scrambling to present a phony deconsolidation of its Canadian operations from the Company but that does not wash. The Company is one and if they want a bankruptcy, it must involve USS equity stock ownership, all its long-term and short-term debt, other legal obligations and all its assets and property holdings throughout the world but especially in the United States.

The owners and executives of U.S. Steel want to dump their obligations in Canada without going through the proper channels of selling assets or taking on debt to meet those legal obligations. This bankruptcy is illegal and a fraud.

(Information Update, #24, September 18, 2014)


Local 1005 USW Press Conference

Transcript of presentation by President Rolf Gerstenberger

On September 18, a press conference was held at Local 1005 USW’s union hall in Hamilton. Local 1005 President Rolf Gerstenberger presented the views of Local 1005 on the September 16 Companies’ Creditors Arrangement Act (CCAA) filing by U.S. Steel Canada, followed by questions from members of the media. The press conference was attended by 110 workers and pensioners along with Hamilton Mayor Bob Bratina and Hamilton East Stoney Creek MPP Paul Miller. The media were represented by the Hamilton Spectator, CHCH-TV, CBC-Hamilton andTML. TML Weekly is publishing the transcript of the presentation by Rolf Gerstenberger, very slightly abridged by the author. Also posted below are two related items handed out at the press conference.

* * *

Thank you all for coming. Here is what Local 1005 wants to communicate at this time.

Local 1005 with utter contempt rejects this entire CCAA fraud which U.S. Steel has filed. The term Grand Larceny only refers to theft above $500. What US Steel is doing is larceny on such a grand scale, a term has yet to be invented to adequately describe it. The fact that Justice Morawetz permitted USS to file these documents cannot be dismissed as par for the course. It is an unconscionable scam from A to Z and USW 1005 will not remain silent on any of it.

The very first statement in the factum declares, “USSC is the sole applicant in these proceedings. The remaining entities within the USSC Group are not seeking protection as applicants under the CCAA.”

We question this in the Information Update issued today. It is very strange that no owner is listed in this entire proceeding. What is this USS Canada, which has no owner who can be held to account, and is hived off from USS for purposes of perpetrating this fraud?

The factum then blames labour for all its problems. It says:

Point 3. “Unfortunately, many of the problems that plagued Stelco continued to confront USSC after the restructuring and sale, such as competitive cost disadvantages including high cash funding costs in respect of pension and other retirement benefit obligations, as well as uncompetitive labour costs and related labour interruptions.”

In this way, through sleight of hand, the fact that USS did its own due diligence when it purchased Stelco in 2007 is dismissed. More significantly, does it really think that its talk about labour disruptions being a problem will divert us from the fact that court documents have fully exposed that when it purchased Stelco it was engaged in a price fixing conspiracy with 7 other companies to smash production in order to keep prices high, making it clear that this is precisely what it did in Canada with its lockouts and layoffs?

USS has already agreed to settle the lawsuit against it by paying a $58 million penalty for its part, but that is not the end of the matter. Right at the time when it purchased Stelco, it made a commitment to the federal government through the Investment Canada Act (ICA) to maintain a production level of over 4.4 million tons of steel for three years and to employ over 3100 workers for this period. Within one year of purchasing Stelco, it shut down the blast furnace in Hamilton for the first time and violated that agreement. In seven years since USS purchased Stelco, the Hamilton furnace has been shut down for five of those years and last fall, USS announced it was shutting the blast furnace and steelmaking down permanently.

When U.S. Steel shut down the whole of Stelco in 2009, Local 1005 introduced evidence for the ICA lawsuit that outlined how the workers at Stelco lost $29 million in wages and benefits. Also, 600 workers retired at that time because of the threat of permanent layoff. By taking their pensions prematurely, they have lost about $72 million in income. Then we had the phony lockout in November 2010 for 11 months, which also forced about 200 workers to retire early, and they have lost at least $14 million since that time. The lockout itself involved 600 workers locked out for 49 weeks with a loss of wages of $32 million, some of which is owed to the Employment Insurance Fund, which agreed it was a phony lockout. The total damage done to the Stelco workers for U.S. Steel’s lockouts and layoffs is no less than $150 million and this does not calculate the additional damages to Lake Erie workers over the course of two phony lockouts.

It is incredible that USS dares to quote labour and the costs of labour to be the problem when it is already publicly known in U.S. courts that it conspired to smash production.

We would also like to remind the Provincial government that it has extra responsibility here and we will hold it to account. The Province permitted U.S. Steel to purchase Stelco over the objections of Local 1005. In the agreement in 2007, the Province allowed U.S. Steel to remove the provision from the pension agreement coming out of CCAA that prohibited the payment of stock dividends until the Pension plans had been made whole. We objected to this at the time. If we calculate that each year, from 2008 to 2014, U.S. Steel paid out $.05 per share for their approximately 144 million shares, about $7 million per quarter, this means that since U.S. Steel bought Stelco they have paid close to $187 million in dividend payments, not counting 2007 itself. This amount comes to $201 million counting the two quarters in 2007 and the first two quarters in 2014. Despite this, the pension funds are not whole and we are reliving the CCAA bankruptcy fraud to get rid of the workers’ pensions.

We appreciate that the Province of Ontario is under big pressure here because this entire scam also dumps all the environmental cleanup costs on Canadians. In this regard we would like to warn against conciliation with this CCAA fraud in any way because both the Province and Hamilton City Council would be on the hook for cleanup costs, which USS intends to walk away from. Not only will their scam result in hardship for thousands of pensioners, but for the citizens of Hamilton and Ontario as a whole, because U.S. Steel also has plans to leave the city and province with cleanup costs related to Randall’s Reef and for the land.

We also join the USW in denouncing the Federal government for not releasing the details of their secret deals. We express utter contempt for the statement made by Industry Minister James Moore quoted in the Hamilton Spectator. He says that the government’s “thoughts are with the workers and their families.” The content of this concern is exposed by his irresponsible statement about the Debtor-In-Possession (DIP) financing that U.S. Steel says is its only responsibility in this sordid affair. According to Moore, and I quote, “While this process is ongoing, U.S. Steel has indicated that they have a plan to ensure that salaries, pensions and operations are not affected. The government of Canada will continue to monitor the situation closely.” This DIP financing is a real scam, an end run around their legal and moral obligations. DIP financing in CCAA is considered “Priority Charges,” which rank above all other creditors. They have turned normal intercompany financing into a secured debt. This has become a problem with these huge monopolies, which hide behind layers of shadow companies and no one can be held to account. That was one of the initial reasons for anti-trust legislation. Local 1005 will speak more on this fraud of DIP and intercompany loans in due course.

We also want to go on record that one of the biggest frauds being perpetrated in this CCAA application is the ability of a Judge of the CCAA court to declare that USSC is insolvent despite the fact that it is part of the US Steel Empire, which has not been thrown into this mix. Even a cursory look at their financial reports every quarter shows that there was no separate reporting for the Canadian operations until a certain point when this scam to perpetrate a new conspiracy must have started being hatched. All the reports dealt with North America on a consolidated basis. The province permitted the sale to U.S. Steel by telling us that this was a good deal because U.S. Steel was “too big to fail.” The pension changes which allow dividends to be paid is testament to one company with public equity held by USS stock going under the symbol X. But now we hear that it is permissible for U.S. Steel to dump U.S. Steel Canada by setting up a fraudulent bankruptcy and DIP and intercompany financing.

We expect the province to ensure that the whole corporation is responsible to make the pensions whole, to repay the $150 million provincial loan plus interest, for all environmental cleanup and for the federal government also to hold them to account for all other damages.

As part of the price fixing scheme, U.S. Steel has been allowed to smash production in Canada, and now the courts are being used to declare them insolvent. It behooves us not to let the Canadian Courts and court system lower the dignity of Canada, whereby a foreign entity can smash production in Canada and then the courts provide their seal of approval.

Last but not least at this time, we want to protest the statement of the CEO of USS Canada, made in his affidavit, that they have consulted with the stakeholders to no avail.

Michael McQuade, CEO of U.S. Steel Canada made the following submission in his affidavit to support the CCAA application:

“17. USSC has also engaged or attempted to engage, in restructuring discussions with key stakeholders; however, to date, no comprehensive restructuring solution that has secured the support of the necessary stakeholders has been achieved or is likely to come to fruition outside of a court-supervised restructuring process.”

Local 1005 is a stakeholder, and we want it made known that on August 14, 2014, it made USS fully aware of its position on the scam it is now perpetrating by going into CCAA. The background to this is that on August 7, 2014, during contract negotiations, Mr. McQuade made a presentation to the Local 1005 Negotiating Committee. In our opinion, the presentation had nothing to do with the negotiations on a new contract and we duly informed USS of this, and that Local 1005  wanted no part of such things. As for the opinion of Local 1005 on the presentation, Rolf Gerstenberger informed USS that we considered their entire plan to be a conspiracy to commit fraud and that Local 1005 wanted no part of this scheming.

The presentation made by Mr. McQuade had nothing to do with the contract negotiations and, as such, Local 1005 is not bound by any agreement as concerns not speaking to the press about the negotiations. Today we are providing the media with both our objection dated August 13, to having USS’s proposal to commit fraud provided to us during negotiations for a new contract, as well as our analysis and written response to their proposal, dated August 14.

We have received no response from them to our concerns, despite requesting to be informed in the event that we had misunderstood their proposal in any way. They then filed for CCAA protection on September 16, 2014 and it is clear to us that their factum and course of action proposed for the CCAA proceedings follows the script of their August 7 proposal despite the change of venue. Our conclusion remains the same – it is a plan to defraud our pensioners, to defraud the provincial government of the $150 million loan, to defraud governments at various levels of the environmental cleanup costs and to prevent any discussion on how to solve problems in Canada’s steel sector and implement solutions. To date, U.S. Steel’s response to problems in Canada’s steel industry is to wreck it.

How will this script play out is what we are all now waiting to see unfold. Perhaps USS already has a phony front operation waiting to purchase Lake Erie Works and other assets within the requested 30 day stay of proceedings, which is said to be the “sensible” way to proceed. This would effectively sever much of the assets from the retirees whose work made those assets possible.

I would like to conclude by repeating the call we issued in today’s Information Update:

“Local 1005 USW hereby appeals to the Court of Canadian Public Opinion to see that justice is done in this matter. All the evidence points to a conspiracy to commit fraud. It is unseemly and unconscionable for Canadian courts or governments at any level to legitimate this fraud. We call on all stakeholders affected by this fraud to protest and join in opposing it. This includes the organizations of salaried employees, suppliers, environmental organizations, municipal councils, politicians at all levels — federal, provincial, municipal — all political parties at the federal and provincial levels and citizens and their organizations from all walks of life. It is the view of Local 1005 that this presents also opportunity for all those involved in lawyering to uphold the integrity of their profession by opposing the use of the courts and legal proceedings and the law to commit fraud.

“Enough is Enough!

“Let Us Together Take a Stand in Defence of the Dignity of Labour, Decency, Upright Behaviour and the Right Thing to Do! Do not Permit Canada to be Trampled in the Mud by U.S. Steel!”

Thank you. We will now hand out the documents dated August 13 and 14 respectively.


August 13 letter of Local 1005 to U.S. Steel

The following letter was delivered to Ms. Jodi Koch, Director, Human Resources, U.S. Steel who is the assigned negotiator for U.S. Steel in current negotiations with Local 1005 for a new contract.

* * *

Local 1005 USW hereby informs you that its Negotiating Committee is not mandated by the membership to participate in any discussions that do not address the core interests of steelworkers and pensioners to secure a negotiated agreement acceptable to its membership and, within this purview, to make the pension plan whole and viable for all members of the plan.

Local 1005’s Negotiating Committee and U.S. Steel have now met several times in August in what Local 1005 believed to be contract negotiations. Some negotiations are taking place on the contract proposals submitted by both Local 1005 and U.S. Steel. However, Local 1005 notes that these meetings have also revealed what is, in the opinion of Local 1005, a CBCA [Canada Business Corporations Act] conspiracy on the part of U.S. Steel to defraud Hamilton pensioners of their pensions, the province of Ontario of its $150 million loan it made at 1 per cent interest in 2007, and Canadians of their right to have polluted grounds and waters cleaned up by the corporation responsible for polluting them.

Local 1005 opposes all talk and plans to isolate Hamilton Works as a so-called standalone entity so as to destroy the Hamilton Bargaining pension plan within a CCAA process or bankruptcy, to dump within that bankruptcy any contaminated land or water for which the company is responsible, and yet save for itself Lake Erie Works, its extensive lands and port and any other assets not connected with a CBCA restructured “standalone” Hamilton Works.

Within this plan, it seems U.S. Steel will ask the province of Ontario to forgive its $150 million dollar loan. As well, USS will issue $250 million in secured debt to cover perceived losses during 2014 and 2015 in a “standalone” Hamilton Works for which the holder will come first in line in any CCAA process or bankruptcy, and all pensioners, other creditors, suppliers and anyone else owed money will be left twisting in the wind. All of this seems to be carefully crafted to keep U.S. Steel assets, debt holders and shareholders in the United States free from any liability at a bankrupt “standalone” Hamilton Works and deny the rightful claims of pensioners and Canadians. In the opinion of Local 1005 USW, the people of Hamilton and indeed all of Canada will be outraged should this plan be implemented. This includes not only working people but also the business community and politicians of all stripes.

Local 1005 does not think these USS schemes will create a viable Hamilton Works and it opposes them. The price-fixing conspiracy USS entered into with eight other steel companies in 2007 has already caused grave damage to Hamilton steelworkers and the community, as well as the Canadian steel industry. The revelation of the conspiracy makes it clear that all kinds of promises made when USS purchased Stelco were not abandoned due to “market conditions” as steelworkers and Hamiltonians were led to believe. The price-fixing conspiracy indicates that USS seems to have known all along that its public commitments were false. Its current plans merely reveal another conspiracy in the making, first to use the CBCA and then CCAA or bankruptcy to achieve further dishonorable aims.

Local 1005 wants no part of this CBCA conspiracy. Its Negotiating Committee is not authorized to hear any more about it. Local 1005 also thinks that Hamilton Works can operate profitably albeit at the profoundly crippled level it has been reduced to since U.S. Steel took it over.

In conclusion, please be informed that the Negotiating Committee of Local 1005 was mandated to negotiate a contract. It wants to meet with U.S. Steel to negotiate in good faith a new collective agreement and to organize to make the pension plan whole, as both U.S. Steel and the Government of Ontario pledged would be done.

Local 1005, its members and retirees reiterate what has been said repeatedly, “No restructuring on the backs of workers!”

Rolf Gerstenberger
President
Local 1005 USW
Hamilton, Ontario, Canada
August 13, 2014


August 14 response from Local 1005 to U.S. Steel’s self-serving restructuring proposals

The following document was delivered to U.S. Steel via Ms. Jodi Koch, Director, Human Resources, U.S. Steel on August 14, in response to a presentation made to the Local 1005 USW Negotiating Committee by Michael McQuade, CEO of U.S. Steel Canada, on August 7.

* * *

Let us look at U.S. Steel’s CBCA [Canada Business Corporations Act] restructuring proposal and assess whether it solves any problems in the steel industry and is good for Canada.

The CBCA framework proposes that USS Canada (USSC) be broken up into six subsidiaries of USS, four in Hamilton and two in Lake Erie. Each entity would be a standalone company with no revenue coming from USS to assist it in course of a shortfall after 2015. As separate companies, they would be responsible for local taxes and other claims. The six standalone entities are:

Hamilton land (over 1000 acres);
Hamilton Cokes;
Hamilton Finishing;
Hamilton other (to include anything overlooked);
Lake Erie land (about 6600 acres of unused land);
Lake Erie Works operations.

USS would provide secured financing until the end of 2015 of $250 million. After that, the entities are on their own and would survive or fall according to their balance sheet.

A twist in this proposal involves Lake Erie Works and Lake Erie land after USSC is split into six entities. An M&A process (mergers and acquisitions) would commence regarding those two entities and USS would purchase them outright.

A USS purchase of LEW and LEW land would mean that they are brought back into USS as wholly owned parts of the company and would not be standalone entities in any legal sense. It would appear that this means that USS would have direct control over all operations and revenue from LEW and its land. An important aspect of this would be that LEW and LEW land would have no further legal connection with the four other standalone entities in Canada. Those four and their pensioners would no longer have any connection with LEW and its land. It is important to note that many of the pensioners of former Stelco and those workers who have passed away provided the revenue and collateral for the building of LEW and the acquiring of its land. This connection cannot and should not be broken.

The CBCA restructuring would then be in a position to dispose of the four remaining entities and their debts and obligations including the pension benefits without a legal connection with USS and its wholly owned subsidiaries LEW and LEW land. Presumably, a CCAA restructuring of one or more of those standalone entities could commence without any threat of spillover to other assets either directly or indirectly owned by USS. The majority of Stelco pension plan members, Hamilton Bargaining members (9,338), Hamilton salaried employees’ members (3,276), would be severed from the last remaining operational blast furnace within the former Stelco steel operations.

Obviously, the number of retirees as compared with the remaining functional assets and employees of the four standalone entities would be extremely high. Hamilton Works’ bargaining unit now has 600 members. USS would argue, as it already does, that the four entities are not viable while continuing to be obligated to provide defined benefits for their retirees. This is the main reason USS accuses Hamilton Works of being unprofitable.

A bankruptcy would occur where the secured holders of debt (the $250 million new credit for 2014 and 2015) would be first in line for the assets of either one or more of the standalone entities. USS would argue that the retirees are mostly attached to only Hamilton Cokes and Hamilton Finishing and are their responsibility alone. A bankruptcy would most likely involve only those two entities leaving the assets of Hamilton land, including the port probably, and Hamilton other untouched in the bankruptcy process or CCAA restructuring.

This CBCA restructuring would proceed in concert with a restructuring of the pension obligations prior to any CCAA restructuring or bankruptcy process. The object of the CBCA restructuring is to isolate most pension obligations and the environmental cleanup connected with Hamilton Works from the LEW, LEW land and U.S. assets. USS realizes to accomplish its aim through a CBCA to insulate LEW and its U.S. assets from any liability for environmental cleanup and its pension obligations at Hamilton Works, it must at least go through the motion of proposing a restructuring of its pension obligations.

If USS jumps straight into CCAA or an outright bankruptcy of USSC before its CBCA restructuring, it runs the risk of losing not only all its assets in Canada but also it leaves itself vulnerable to claims against its U.S. assets. With this in mind, it has made a pension restructuring proposal in concert with its CBCA restructuring.

USS pension restructuring proposal in concert with the CBCA:

USS would make the final five month payments into the plan for 2014 of $5.83 million each month followed by the final $70 million yearly payment in 2015. This brings USS to the end of the agreement with the Ontario government to fund fully the pensions by the end of 2015. In return, the company received a $150 million loan from the province at 1% annual interest. The province would forgive repayment of the loan and turn it into a grant if at the end of 2015, the pension plans are fully funded, solvent and whole, and capable of paying all defined benefits to all members until passing away. The pension plans will be far from fully funded, solvent and whole at that time so USS must repay the $150 million to the province.

Instead of repaying the loan, the USS pension restructuring would ask the province to forgive the loan anyway under the following conditions:

The period to fully fund the pensions and make them solvent and whole would be extended fifteen years to 2031;

The M&A process turning USSC into six entities would obligate the entities and/or buyers to assume the pension obligations, which are connected with each particular entity;

USS would agree to pay $10 million per year into the pension plans for the 15 years for a total of $150 million if the province would agree to extend the date for which the plans must be fully funded, solvent and whole until 2031 and would forgive the $150 million provincial loan;

USS would be given the option to pre-pay the $150 million up front;

The standalone separate six entities would be obligated to fund fully the pension plans for which they are responsible and make them solvent and whole by 2031.

The amount USS guarantees to put in the plans according to this restructuring would be:

$29.15 million for the rest of 2014;
$70 million for 2015;
$150 million total at $10 million per year for fifteen years until 2031.
This totals = $249.15 million

The $249.15 million is on condition the province forgives the USS loan of $150 million and extends the legal limit before the plans must be solvent to 15 years.

This means the net amount USS has offered to put in the plans equals = $99.15 million.

The latest report on the four pension plans puts the amount necessary to fund them fully and make them solvent and whole and capable of meeting the defined benefits of actual and potential retirees equals = $838 million

Breakdown:

Hamilton Bargaining Plan = $573 million
Hamilton Salaried Plan = $117 million
Lake Erie Bargaining Plan = $117 million
Lake Erie Salaried Plan = $32 million

In addition, the OPEBS (Other Post Employment Benefits) are $40 to 48 million.

Ontario law stipulates that five years after the ending of the pension agreement the four plans must be fully funded, solvent and whole with five yearly payments equal to one fifth of the solvency deficiency. This means USS is obligated to pay $168 million per year beginning in 2016 given the latest report. It also must pay back to the Ontario government the $150 million loan.

The pension restructuring comes nowhere near to meeting the legal pension obligations of U.S. Steel. The $99 million does not even meet its obligations for 2016 let alone for the remaining four years.

The CBCA restructuring proposal is obviously meant to liquidate U.S. Steel’s pension obligations and OPEBS.

Canada’s steel requirements are greater than steel production capacity at this time. This means steel must be imported, even those types that could be easily produced in Canada. The CBCA proposal does not even attempt to address problems of internal production shortages plaguing the Canadian steel sector. Hamilton Works could be renewed to go a long way in meeting Canada’s demand for steel.

Unfortunately, USS takes a very self-serving position with regard to Canadian steel production. By refusing to renew production at Hamilton Works, USS appears to want to fill Canadian demand from its U.S. mills. This also dovetails with its efforts to curtail North American production to fix prices at a level it seeks. It recently agreed to pay $58 million to settle a price fixing indictment in U.S. courts.

The CBCA and pension restructuring proposals when looked at as a single package reveal what some claim is a criminal conspiracy to avoid the legal obligations of USS towards Canadian pensions, the environment and steel sector. These proposals are hostile to Canadians in general, and steelworkers and salaried employees in particular and should be soundly rejected by all Canadians and their government representatives.

Alternate proposals must be discussed that fully uphold the pension obligations towards all Stelco pensioners, and renew the productive capacity of Hamilton Works in particular, including a refurbishing of its blast furnace and other productive facilities. Revenue from both a renewed Hamilton Works and Lake Erie Works would go a long way to restructuring the situation in a positive way, meeting the pension obligations and building the Canadian steel sectors’ capacity and vitality.

If this were done, and USS would show good faith in this direction, the Ontario government would undoubtedly come forward with positive proposals of its own to solve the pension funding problem, including putting USS payment of the $150 million loan towards the pensions and extending somewhat the time necessary to fund fully all four pension plans and make them solvent and whole and capable of meeting the pension benefits of all actual and potential retirees. But this requires good faith on the part of USS to renew Stelco and not further wreck it.

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One response to “U.S. Steel files for bankruptcy protection – Steelworkers respond

  1. Pingback: Event. Demonstration in support of US Steel pensioners and employees | Tony Seed's Weblog

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