U.S. Steel’s bogus bankruptcy

Local 1005 Steelworkers protest outside CCAA court hearing in Toronto, October 6, 2014

Legal restructuring means the claims of employees, retirees, suppliers and the federal and Ontario governments are to be disappeared

On September 16, U.S. Steel filed for bankruptcy protection for its Canadian operations under the Companies’ Creditors Arrangement Act (CCAA).

Information Update, the newsletter of Local 1005 United Steelworkers, questions the assertion that U.S. Steel’s Canadian facilities, called USSC, are bankrupt when they are wholly-owned by the U.S. parent company and the parent company, USS, is far from bankrupt.  This assertion appears as the main argument for CCAA. The factum presented to the court presents no proof of separate ownership of the Canadian subsidiary. The sole equity ownership remains in the hands of the U.S. Steel stock traded as X on the New York Stock Exchange.

The claim is that the Canadian subsidiary is hopelessly in debt to the parent company, which is the sole secure creditor. USS demands reimbursement of the $2 billion debt owed to it by its wholly-owned subsidiary. This, of course, comes before the claims of all others including employees, retirees, suppliers and the federal and Ontario governments. The restructuring process under CCAA means that their claims are to be disappeared.

The accounting methods used are an important factor in this affair. In this case, the books are set up in such a manner as to make normal business transactions within a single company appear as those amongst separate companies. Cash flow within the company is made to appear as an exchange of goods and services and financial transactions between a lender and borrower. In this way, it is relatively simple to manipulate the situation and cut off an unwanted part of the company without damaging the whole.

It also appears that when U.S. Steel purchased Stelco in 2007, it wanted to destroy Stelco as a competitor and restrict steel production in Canada in an effort to boost steel prices in North America. It would appear that through CCAA, USS hopes to salvage whatever it can for itself from the disaster it has created in Canada.

To qualify for bankruptcy protection, the company claimed that in order to maintain operations in Canada, USSC relied on funding provided by USS totaling approximately $3.9 billion, consisting of $1.6 billion of debt and $2.3 billion of equity, since the acquisition in 2007.

However, U.S. Steel has not declared a profit from any of its operations since 2009. Why would it single out two facilities in Canada for special mention, especially since production at those two operations has been deliberately curtailed by USS itself through layoffs, lockouts and the closure of the steel-making department at Hamilton Works? USS has relied on borrowing to keep its operations going during these years of not making a profit.

USSC says its principal liabilities as at August 31, 2014 include the following: (a) USS secured loan of $204.1 million principal and $5.3 million accrued interest; (b) USS unsecured loan of $1.419 billion and $438.2 million accrued interest; (c) Province of Ontario Loan of $150 million and $0.6 million accrued interest; (d) Pension plan liabilities of $372.5 million (on a financial accounting basis) or $838.7 million (on a solvency funding basis) (e) Other post-employment benefits (“OPEBs”) of $787.9 million; and, (f) Trade payables of $363.7 million (of which $189.9 million are third party trade payables and $174.8 million are USS intercompany trade payables).

The pension plans and OPEBs cannot be considered a claim on fixed assets unless USS stops producing. They are negotiated claims on the value workers produce. The claims are paid from the realized value USS workers produce anywhere in its global operations. They could only become claims on existing assets if USS stopped producing altogether and sold off all its means of production.

“Intercompany trade payables” is a term used by global monopolies. The term implies that the one monopoly consists of separate and even competing companies. The accounts are kept in this way to move around money, goods and services to reduce corporate taxes and to stage events such as the filing for bankruptcy protection of one or more “companies” within the global monopoly so it does not have to take responsibility for its actions. In the extreme, a global monopoly is registered as a holding company in a tax haven such as the Cayman Islands.

USS accounts for steel sent from one of its mills to another to be transformed into a product. Lake Erie Works (LEW) sends steel to Hamilton Works (HW) for finishing. An account is kept of this shipment but this does not become a debt in the sense of a trade payable to another company for supplies. It means simply that an account is made of the value of the intra-company transaction and the value of the final realized product reflects the intra-company transaction and the portion moved from one division, facility or section to another is returned at least in the accounts. Despite this, USSC claims it is insolvent. Information Update writes: “An interest payment of approximately $162.5 million due to USS is the catalyst for the bankruptcy in Canada. My left hand owes my right hand a million dollars and cannot pay the interest therefore my left hand is bankrupt while my right hand merrily carries on. What a joke!”

It adds: “Besides, if U.S. mills of USS are filling Canadian and other orders for steel that could be supplied from Canada, it is completely deceitful to now say the Canadian mills owe USS a debt for having had their orders taken from them and their productive capacity restricted and even permanently shuttered such as the Hamilton blast furnace.”

Local 1005 also decries the USSC claim that it qualifies for bankruptcy protection because it has implemented “cost-saving measures” to no avail. “Cost-saving measures,” Information Updatepoints out, do not generate additional income. They do nothing to renew production. USS has consistently wrecked the production of value in Canada and has the nerve to call it “cost-saving measures.”

The fact is that US Steel is merely looking for a way to get rid of “debt, pension and retirement obligations — particularly in the face of challenging steel market conditions.”

USS has shown no interest in having the former Stelco survive as a viable business. It has consistently wrecked production and the means of production and is now wrecking it further in the name of acquiring what it calls “breathing room.”

Local 1005 is appealing to the Court of Public Opinion to make sure monopolies such as U.S. Steel cannot restructure on the backs of the workers. Information Update writes: “If the intention is to shut the facilities down and sell them off, it must use the assets to pay off its claimants starting by making the pension plans whole, paying its suppliers, repaying the Ontario government and all other legitimate claimants and forget about its so-called ‘intercompany’ debts.”

As it stands, “the only beneficiary of CCAA is USS, which controls the process and is appealing to the court to avoid its financial and other responsibilities. If it truly wanted to benefit its stakeholders, it could do so outside CCAA in an open and respectful manner meeting all its obligations and responsibilities. It could in particular renew production at Stelco and make it a viable and profitable operation as it has been for over a century.”

“USS is not insolvent and should deal with its wholly-owned subsidiary in an open and businesslike fashion without resorting to going into CCAA which permits it to renege on the deal it signed, its commitments and obligations,” Information Update points out.

Source: Workers’ Forum

 

2 Comments

Filed under Working Class

2 responses to “U.S. Steel’s bogus bankruptcy

  1. Companies’ Creditor Arrangement Act. It’d be interesting to hear the opinion of the person(s) who wrote the act on U.S. Steel’s actions.

    Like

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