The Ontario government is backing a holding company’s bid to buy beleaguered U.S. Steel Canada Inc., which could get the company back on its feet – and get the province out from under potentially big pension obligations.
The government announced Wednesday it had signed an agreement with Bedrock Industries Group to “facilitate the restructuring” of U.S. Steel Canada. The terms of the deal are thus far confidential.
“The [agreement] is an important step forward with the completion of restructuring intended to protect jobs, the ongoing operation of US Steel’s Hamilton and Lake Erie facilities, pensions and post-employment benefits for active and retired US Steel employees,” said Finance Minister Charles Sousa during question period. “The terms of the MOU remain confidential until they can be released pursuant to the court process. We’ve also agreed to support the development of the industrial lands in an effort to promote the economic development of the Hamilton region while ensuring that the environment continues to be protected.”
U.S. Steel Canada has two large mills in Hamilton and in Nanticoke on Lake Erie, which employed more than 2,300 people as of 2014. But, after having taken losses of $2.4 billion from 2008 to 2013, the company entered creditor protection in September 2014.
U.S.-based Bedrock describes itself as "a privately funded holding company focused on owning and operating metals, mining and natural resources assets and related special situations."
"Our philosophy is to operate assets to maximize value creation and returns to our stakeholders through a differentiated approach to acquisitions, asset optimizations, operational enhancements, and restructuring, as well as an active and collaborative partnership with public and private investors," claims the private equity fund.
The United Steelworkers union said it is supportive of the arrangement, which it said “contemplates that Bedrock, an industrial company building its production platform in metals, will purchase and continue operating U.S. Steel Canada’s plants in Hamilton and Nanticoke.”
Sousa said the deal is “subject to many, many conditions,” as well as the court's approval, and the Steelworkers said two new contracts must be negotiated with the local unions. Bedrock must also come to terms with U.S. Steel, U.S. Steel Canada's former parent company and one of its creditors.
“We have been briefed on the agreement and we acknowledge that the province and Bedrock have made an effort to address many of our concerns about protecting the interests of our members and retirees,” added USW Ontario director Marty Warren in a release.
Ontario is one of U.S. Steel Canada's company’s creditors, having loaned Stelco $150 million in 2006, before U.S. Steel purchased the company in 2007, and renamed it U.S. Steel Canada.
Ontario has pitched in approximately $5.65 million to help out with retirees’ health benefits. The province was also potentially on the hook for U.S. Steel Canada’s pension liabilities.
According to an affidavit from US Steel Canada President Michael McQuade, the company had a pension solvency deficiency of approximately $838.7 million as of the end of 2013. Ontario could be liable for some of that shortfall; an actuary, the affidavit said, estimated the Pension Benefits Guarantee Fund could be on the hook for more than $400 million of the company’s pension deficit.
The PBGF exists to “guarantee payment of pension benefits of certain defined benefit pension plans that are wound up under conditions specified” in the Pension Benefits Act, its most recent financial statements explains.
Without mentioning U.S. Steel Canada, those statements, for the year ended March 31, 2015, said “There is currently a company operating under Companies' Creditors Arrangement Act protection whose pension plans could make significant claims on the Fund.”
“As these potential claims remain at an early stage, an estimate of the claims which might be incurred, if any, cannot be determined,” added the document.