Stelco Inc.’s Court-appointed Monitor has filed its forty-fourth report regarding the company's Court-supervised restructuring. The Report provides updated information regarding the sanction hearing, fairness of the plan, and enterprise value and its effect on recovery.

In its report, the Monitor stated its view that the restructuring plan approved by affected creditors on December 9, 2005 is fair and reasonable. The Monitor recommends that the Court sanction the plan at the hearing scheduled for January 17, 2006. In support of this recommendation the Monitor indicates its belief that Stelco has satisfied the imposed requirements regarding the meetings of affected creditors held in November and December, including the requirements under the CCAA and all Court Orders made during the restructuring process. The Monitor also stated the view that the plan approved on December 9, 2005 represents a fair and reasonable compromise among stakeholder groups, and is fair and reasonable in terms of its effect on the affected creditors.

In its report, the Monitor reviewed elements of the plan approved by affected creditors, describing the plan as the embodiment of a point of consensus among key stakeholder groups. Given the intensity of negotiations towards an agreement, the Monitor believes that an agreement would not have been reached had it been necessary to provide material consideration to flow to the existing shareholders. The Monitor noted that in terms of legal priority, the existing shareholders rank behind the creditors of Stelco.

In its report, the Monitor notes that without an agreement such as is embodied in the plan approved on December 9, 2005, it is unlikely that Stelco would be able to emerge as a viable entity. The Report notes that, under a realization in the absence of an approved plan, the unsecured creditors would receive approximately 13 to 28 cents on the dollar on the amount of their claims.

The Report also notes that the Monitor has obtained an independent estimate of the enterprise value of Stelco. This analysis was prepared by the Valuation Group of Ernst & Young Orenda Corporate Finance Inc. (EYO). The Monitor notes that the EYO analysis estimates the enterprise level, fair market value of Stelco's integrated steel business at January 1, 2006 to be between $635 million and $785 million. The Monitor adds that the EYO findings are unlikely to change substantially by the end of February, 2006, the time at which Stelco is currently expected to emerge from the CCAA process.

The Monitor notes that, based on the EYO analysis, the enterprise value of Stelco's integrated steel business is not sufficient to satisfy all of Stelco's liabilities in full on emerging from the CCAA process, including the claims of affected creditors. As a result, the Report notes that the estimated enterprise value is insufficient to provide value for existing shareholders.

The Monitor notes that Stelco is forecasting that its new asset-based loan facility will be drawn in the amount of $380 million on exiting from CCAA after receipt of net proceeds from the Province of Ontario Note and from the asset sale process, and after payment of $400 million to the pension plans. The Monitor also notes that Stelco's outstanding interest bearing debt and stayed debt obligations exceed the EYO estimate of enterprise value by between $257 and $407 million.

In light of these considerations, and based on the EYO estimate of value, the Monitor concludes that the affected creditors will not receive a full recovery on their claims. As a result, and having regard to legal priorities, the Monitor expresses the view that the plan approved by affected creditors is not unfair or unreasonable to the existing shareholders. The Monitor goes on to express the view that any plan which did provide for a recovery to existing shareholders in these circumstances would likely not be viewed as fair, reasonable or acceptable to the affected creditors.

Certain portions of the Monitor’s 44th Report have been redacted due to the confidential nature of the information. An appropriate court order will be sought to seal the full version of the Report in due course.

Stelco Inc. is a large, diversified steel producer involved in major segments of the steel industry through its integrated steel business, minimills, and manufactured products businesses.