Ernst & Young Inc. has released the Fifth Report of the Monitor on Stelco Inc.'s Court-supervised restructuring under the Companies' Creditors Arrangement Act (CCAA). The report highlights several recent developments, including the lack of progress in stakeholder discussions, and recent court motions by General Motors and Stelco.

Stakeholder discussions—On May 27, 2004 the Court directed that counsel for the unions, the company, the Monitor and any other interested stakeholders sit down to discuss the best means of engaging in meaningful discussions on the restructuring and other matters. The Monitor has reported that, despite extensive negotiations, the company and the USWA Locals have been unable to agree upon such a process.

General Motors motion—General Motors (GM), one of the company's largest customers, indicated on June 10, 2004, that it would seek the Court's permission to terminate its supply arrangements with Stelco's Lake Erie facility effective July 31, 2004. GM cited Stelco's inability to provide certainty of supply beyond the July 31, 2004 expiry of the collective agreement at Lake Erie plus the extended lead time needed to secure steel from alternative sources as the reasons underlying this action. The motion was scheduled to be heard on Monday, June 14.

The Monitor stated that the loss of a customer of this size would have a destabilizing effect on the company and its operations. Well in excess of 50% of Lake Erie's production is sold to customers in the automotive sector. The Monitor noted that the loss of the GM business and the potential of further losses of other automotive customers would damage the company's efforts to expand its automotive business.

Ministry of Labor motion—In response to a request by USWA Local 8782 for the appointment of a Conciliation Officer, the Ontario Ministry of Labor brought a motion seeking the Court's direction regarding the Ministry's ability to appoint a Conciliation Officer. That motion was scheduled to be heard on Monday, June 14.

Stelco motion—The Monitor reported that Stelco, in response to the General Motors and Ministry of Labor motions, has brought its own motion seeking an Order granting leave to the Ministry of Labor to appoint a Special Officer under the Labor Relations Act if the Minister considers that it will promote harmonious industrial relations between the parties. That Officer would confer with the parties to assist them in an examination of their current relationship or the resolution of anticipated bargaining problems. This motion, too, was scheduled to be heard on Monday. June 14.

Comments—The Monitor observed that CCAA proceedings are designed to establish and maintain the stability of the Applicants to afford them an opportunity to restructure. Retention of the Applicants' customer base is a key component of the business plan which underlies the restructuring effort and is essential to ensure the long-term viability of the Applicants.

The Monitor’s stated view is that the relief sought by Stelco represents the most effective balancing of interests of all stakeholders in that it will promote ongoing dialogue between Stelco and the unions with the assistance of a third party officer appointed under the Labor Relations Act.

Stelco Inc. is a large, diversified steel producer that is involved in all major segments of the steel industry through its integrated steel business, mini-mills, and manufactured products businesses. Consolidated net sales in 2003 were $2.7 billion.