Unions welcome new lender for U.S. Steel Canada
A replacement lender for U.S. Steel Canada that will in effect double the cost of keeping two Canadian steel plants afloat was approved by a Toronto court Friday.
The application from USSC to replace its parent company, U.S. Steel (USS) with the new lenders, Brookfield Capital Partners, could cost the company $9.25 million, plus administration costs.
From the beginning we have said the DIP financing should not have been held by U.S. Steel.- Bill Ferguson, president, USW Local 8782
By changing financiers of a special line of credit for bankruptcy protection proceedings, called debtor-in-possession (DIP) financing, USSC will pay the up-front and exit fees for the loan a second time in less than a year -- a decision welcomed by the union because it remedies what was feared to be a conflict of interest.
"From the beginning we have said the DIP financing should not have been held by U.S. Steel," said Bill Ferguson, president of United Steelworkers union Local 8782. "We weren't interested in having the DIP financing shoved up our a-- at some point in the future when we come to a contentious issue."
New lender, new fees
Stelco was purchased in 2007 by U.S. Steel. Shortly after it was purchased, the Hamilton plant was idled, and fixed operating costs began to erode any chance of profit. The Canadian operation sought bankruptcy protection last September, and entered into Companies' Creditors Arrangement Act (CCAA) protection.
The DIP financing was provided by the parent company to keep operations afloat at the Canadian plants in Hamilton and Nanticoke.
USSC did not take any funds from the DIP funds offered by USS, which leaves questions about how much their first round of DIP financing will cost.
There is a minimum cost of $3.7 million, for the up front fee USS charges USSC, with additions coming to to $9.25 million total, with $5.55 million for an exit fee plus associated costs.
The new financing agreement from Brookfield includes a "commitment fee" of $4.5 million, and exit fee of $3-million, a monthly monitoring fee of $150,000 and an interest rate of up to 12 per cent, plus all expenses. USS' interest rate was 5 per cent, which went up to 7 per cent if the company defaulted.
Paul Steep, lawyer for USSC, said they have not received a letter indicating what costs USS was seeking for the first round of DIP financing.
No opposition
However, with no opposition to USSC seeking an outside lender, the deal was approved and is expected to be in effect by the end of next week.
The timing is critical, as the steelmakers north of the border will need to stockpile supplies before the St. Lawrence Seaway freezes up for the winter.
In the latest court monitor report, which watches over the CCAA proceedings, the monitor noted that the drop in the price of oil "has negatively impacted the price of steel."
It provides some explanation fpr losses of $11.5 million in Hamilton and $31.7 million in Nanticoke through June 2015.
The report also states that USSC had $174.8 million in cash at the beginning of the reporting period, from April to June, and has $124 million to start the summer season. After the summer stockpile season is complete, USSC is expected to hold $31.7 million in cash by Sept. 11, when creditor protection expires.
The new DIP financing agreement extends a line of credit that can last until July 2016.