Touchstone Exploration Inc. press release
Stelco files restructuring plan outline
TSX - Toronto Stock Exchange · Oil · Natural Gas · Natural Gas Liquids · Canada
HAMILTON, ON, July 15 /CNW/ - Stelco Inc. (TSX:STE) today filed with the Court a restructuring plan outline designed to ensure a viable Company over the long term and provide lasting benefits for its stakeholders. Courtney Pratt, Stelco President and Chief Executive Officer, said, "Our plan outline is reasonable, realistic and responsible. It's reasonable because it treats stakeholders fairly and in accordance with their rights. It's realistic because we believe it is financially achievable. And it's responsible because we are the only party with a legal obligation to balance the interests and competing demands of stakeholders. I invite all stakeholders to consider this plan outline from everybody's perspective, not just their own, and to conclude that it is fair and reasonable. After so many months of negotiating we should start working together to secure the approval and implementation of a fair and reasonable plan." The plan provides for the recapitalization of Stelco by arranging new loans, selling non-core assets and issuing new securities. The plan is designed to treat the interests of creditors and other stakeholders in a fair and balanced manner:
Pension beneficiaries, current employees, the union and the Government of Ontario will benefit from a plan to retire the Company's pension plan solvency deficiencies of about $1.3 billion by 2015. It is intended that the pension plans will receive approximately $900 million in upfront contributions and annual cash payments before the first new debt instrument matures in 2012. Secured operating lenders will be refinanced at the time of plan implementation. Unsecured creditors will receive full recovery on approximately $665 million owed to them by conversion of part of their obligations to equity and the balance to new debt, some of which will be secured. Current equity holders will be offered less than 2% of the fully- diluted shares outstanding, the right to purchase shares under a $100 million rights offering and will receive warrants to purchase 10% of the Company on a fully-diluted basis.
"We've worked long and hard to find a middle ground between competing demands," Mr. Pratt noted. "Various stakeholders may criticize the plan because it does not provide them with everything they want. There is not enough value in the Company to give every group everything it wants. The key is to provide enough that everyone can support. We believe this plan strikes that balance, that it is achievable, and that it will result in a viable Stelco over the long term. This balance and achievability reflects the fact that the plan outline does not propose to expropriate one party's interest to satisfy the demands of another." "The plan also provides a reasonable and financially responsible solution to the pension funding issue," Mr. Pratt noted. "This has been one of our stated objectives throughout the restructuring process. We believe that the 10-year deficiency retirement plan balances the competing interests of responsibly funding Stelco's pension obligations and ensuring that the Company has the funds needed to carry on its business. Those funds include the $425 million to be invested in our critical capital expenditure program under the plan outline." The plan is also designed to provide the Company with the liquidity and leverage that are appropriate and in-line with industry peers. It envisions $600 million in new credit facilities, approximately $650 million of net liquidity and a significant reduction in the Company's total debt. There follows a backgrounder to and summary of the plan outline. The plan outline documents can be accessed through a link available on Stelco's Web site.
Stelco's Restructuring Plan Outline: Background and Summary
BACKGROUND
Stelco has tried to achieve consensus: Stelco has worked to secure consensus among stakeholders for nearly 17 months. The Company has initiated, accepted and participated in a number of consultative processes. The goal has been to achieve the consensus of stakeholders around a plan that will receive the necessary votes required for approval of a restructuring plan that will enable Stelco to emerge from CCAA protection. There is not enough value to meet every stakeholder's demands: Some stakeholders have indicated their desire to improve upon their pre-CCAA position at the expense of others. Stelco has indicated on many occasions that there is insufficient value in the Company to meet all of the demands being made by every stakeholder group. No group can get everything it wants. The key is to find a middle ground that everyone can support. Stelco has a legal obligation to balance the interests of stakeholders: Stelco is the only stakeholder with a legal obligation to balance the interests and competing demands of other stakeholders. Other parties have the luxury of making demands designed only to benefit their own interests. As well, the law states that a restructuring plan can only be implemented if it secures the approval of affected creditors and the Court. Key to obtaining those approvals is a plan that takes into account and treats the interests of all stakeholders in a reasonable manner. It's time to move forward: Stelco believes that stakeholders have clearly enunciated their demands and negotiating positions. The continuation of this posturing without resolution will not result in a timely outcome. At the same time, the Company's competitive circumstance has suffered as a result of such factors as falling steel prices, softening market conditions, and increased raw material, energy and other costs. It's time for stakeholders to decide the outcome of this process. The goal - a viable company for the long term: Stelco is committed to achieving a restructuring plan that enables it to emerge from CCAA as a viable company for the long term; that is competitive throughout the market cycle; that preserves jobs; that meets its obligations to retirees and other stakeholders; and, that has the capital structure to support the Company in achieving these objectives. Other stakeholders, depending on their particular situations, may or may not necessarily be fully committed to these same goals. A Plan Outline that can achieve this goal: Stelco has developed a plan outline it believes is appropriate to submit to stakeholders for their approval. The Company plans to meet next week with stakeholders to discuss the plan outline, which is offered as a reasonable plan that is fair to all stakeholders. It undoubtedly will be criticized by stakeholder groups that are not getting everything they want or demand. However, it has the support of the Company's Board, management, financial advisors and Chief Restructuring Officer, all of whom view the plan outline as fair and reasonable.
A TWO-PHASED PLAN
The plan will be implemented in two phases:
Phase One: Immediately upon the Company's exit from CCAA. This phase includes the issuance to creditors of $566 million of new debt and $100 million of new equity. This phase will also see the payment of contributions to the Company's four main pension plans of $100 million in Senior Secured Notes and up to $100 million in cash from the proceeds of the sale of the non-core assets. Phase Two: Following a pension funding agreement with the Government of Ontario and the conclusion of renewal collective bargaining agreements at Lake Erie and Hamilton, $200 million of debt will be converted to equity and a $100 million rights offering will be completed. It is anticipated that the plan implementation will occur on or about September 30, 2005.
NEW FINANCING
New financing will be raised to address the claims of creditors. This will include:
Senior Secured Floating Rate Notes: The US$ equivalent of $250 million, due in 2012. Secured Convertible 6.25% Notes: $116 million, due in 2015. These Notes become unsecured upon completion of the pension funding agreement and the renewal collective bargaining agreements at Hamilton and Lake Erie. The Notes are convertible into common shares. Unsecured Convertible 1% Notes: $200 million, due in 2010. These Notes are, among other features, convertible into common shares at the option of Stelco upon completion of the pension funding agreement and the renewal collective bargaining agreements.
NEW EQUITY
New Common Shares: 11 million New Common Shares of Stelco will be outstanding immediately after plan implementation, 10 million of which will go to the creditor group and 1 million to existing equity holders. Rights: Rights to purchase New Common Shares pursuant to a $100 million rights offering expected to be completed within 18 months and to be added to liquidity. Warrants: Warrants, with a 10-year maturity, to purchase 6.0 million New Common Shares or about 10% of all New Common Shares to be issued on a fully- diluted basis.
NEW CASH
$175 million net proceeds anticipated from the sale of non-core assets. $100 million from the Rights offering $90 million from the Warrants
A REASONABLE PLAN, A VIABLE COMPANY
The plan outline offers the prospect of a Stelco that is viable over the long term:
Approximately $650 million in net liquidity ($550 million Phase One plus $100 million Phase Two) Assumed enterprise value of $885 million Positions of nearly all stakeholders will be enhanced, with potential upside value Funding for $425 million in critical capital expenditures over 18-24 months An affordable pension funding schedule The plan has a reasonable prospect of being achieved if stakeholders react responsibly
AN APPROPRIATE CAPITAL STRUCTURE
Liquidity, leverage, balance sheet structure that are appropriate, in- line with peers Up to $600 million of operating credit facilities Balance sheet improved by $300 million in equity (debt conversion + new equity) Near-term maturities replaced with long term debt Leverage reflects that of the peer group
TREATMENT OF STAKEHOLDERS
Treatment of existing secured operating lenders
Repaid in full
Treatment of creditors
Stelco's senior debentureholders, subordinated debentureholders, plus trade and other unsecured creditors having claims totaling some $666 million receive pro rata share of:
The US$ equivalent of $250 million of the Senior Secured Floating Rate Notes $116 million of Secured Convertible 6.25% Notes $200 million of Unsecured Convertible 1% Notes $100 million of New Common Shares
Treatment of pension plans
Stelco's four main pension plans will receive the following contributions once Stelco and the government of Ontario have entered into a pension funding agreement consistent with the terms of the Stelco plan.
An upfront contribution of the US$ equivalent of $100 million of Senior Secured Floating Rate Notes 2/3 of the net proceeds from the sale of the non-core assets, up to a maximum of $100 million in cash Annual cash payments of approximately $98 million The pension plan solvency deficiencies of about $1.3 billion will be retired by 2015 As a result, the pension plan deficiencies will be addressed in a manner that will reasonably secure the benefits of current retirees and plan members.
Treatment of employees and retirees
Stelco's salaried and bargaining unit employees and retirees are unaffected by the plan They are not being requested to make any concessions in terms of salaries and wages or pension and other benefits They will benefit from the proposed accelerated pension funding plan
Treatment of existing shareholders
In exchange for their existing common shares, existing shareholders will receive a pro rata share of:
1 million New Common Shares The Rights The Warrants
As a result, existing shareholders have the opportunity to retain value if they are prepared to invest new money in Stelco by exercising the Rights and Warrants.
EQUITY OWNERSHIP
On exit from CCAA, the general unsecured creditors will hold 90.9% of the equity while existing equity holders will hold 9.1%. If existing equity holders do nothing more, their holdings will decline to less than 2%. After the exercise of their Rights and their contribution of $100 million, existing equity holders will have 29.8% of the equity while the general unsecured creditors will hold 70.2% (pre-exercise of Warrants).
About Stelco
Stelco Inc. is a large, diversified steel producer. Stelco is involved in major segments of the steel industry through its integrated steel business, mini-mills, and manufactured products businesses. This news release may contain forward-looking information with respect to the Corporation's business operations, financial performance and conditions. Actual results may differ from expected results for a variety of reasons including factors discussed in the Corporation's Management's Discussion and Analysis section of the Corporation's 2004 Annual Report. To learn more about Stelco and its businesses, please refer to our Web site at www.stelco.ca.
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