The United Steelworkers filed objection late last week to Stelco Inc.'s motion to seek approval for the financing commitment offered by Deutsche Bank (the DB Commitment) with the Ontario superior court.

In an affidavit by National Director Ken Neumann, the union says the Deutsche Bank commitment puts unsecured creditors ahead of pension obligations, and does not satisfy the requirement of the Oct. 19 Capital Process Order for a financing proposal that generates no less than $200-million worth of proceeds to Stelco.

"The DB Commitment...in fact leads to a reduction of $100 million in liquidity...", says the affidavit. "The DB Commitment is in effect a swap of unsecured debt for secured debt, which jeopardizes or compromises employee future benefits and the unfunded pension liability."

The affidavit goes on to point out that Stelco has repeatedly claimed that $900 million in Employee Future Benefits and $1-billion in unrecorded unfunded pension liabilities were reasons for filing for protection under the Companies Creditors Arrangement Act (CCAA). These amounts are now compromised since secured debt, which will be significantly increased under the DB Commitment once Stelco emerges from CCAA protection, come first ahead of employees' claims against Stelco.

"...the commitment mandates the payment of $400-million, plus shares to be issued, to other unsecured creditors, which includes senior noteholders and convertible debenture holders, a group that may include DB and its affiliates.

"The DB Commitment is simply DB paying itself and converting its debt from an unsecured to a senior secured position."

The union also seeks to have the Oct. 19 Capital Raising and Asset Sale Process amended for a more open and transparent process, to:

• Permit parties interested in making proposals for Stelco to have immediate and unfettered communication with the union and other key stakeholders.
• Remove the requirement for other parties' permission or attendance at such meetings between interested parties and the Steelworkers and other stakeholders.
• Mitigate the problems associated with the conflict of interest of existing entrenched management in the process.
• Properly test the market for the value of Stelco and to encourage the participation of parties who are interested in the potential acquisition of Stelco, including its subsidiaries, on a going-concern and long-term basis.

The union wants full and frank discussions with potential bidders to elaborate on labor relations at Stelco and identify solutions to the benefit of the future owners of the company and the interests of workers.

The affidavit also reiterates the union's position that Stelco should be restructured as a single entity and not sold off in parts.

Source: United Steelworkers of America