Corporate family would be backup for pension fund

Many struggling steel companies have been unable to pay pension costs.
& lt;a href=mailto:vinarsky@vindy.com & gt;By CYNTHIA VINARSKY & lt;/a & gt;
VINDICATOR BUSINESS WRITER
WARREN -- WCI Steel has a whole family of sister companies, but the richest of the lot could ultimately find its fortunes intertwined with the struggling steelmaker.
Based in Warren, WCI filed for Chapter 11 bankruptcy protection last month. Its most prosperous sibling these days is AM General, the South Bend, Ind., maker of the popular Hummer SUV.
Both are owned by New York multimillionaire Ira Rennert and operate independently as subsidiaries of Rennert's New York-based holding company, the Renco Group.
WCI officials are continuing to operate the mill, the Mahoning Valley's third-largest industrial employer with 1,800 workers, and have said they're determined to reorganize its debts and emerge from bankruptcy.
But if WCI's money troubles become so serious that it can't afford to fund its retirees pension fund -- a fate that many other steelmakers have faced in recent years -- revenue from AM General and other profitable Renco companies would likely be expected to foot the bill.
"In general, corporate brothers and sisters are on the hook," said Jeffrey Speicher, a spokesman for the Pension Benefit Guaranty Corp. in Washington, D.C.
Explanation
The PBGC is a federally sponsored corporation created to guarantee payment of basic pension benefits for retirees participating in more than 35,000 private-sector-defined benefit pension plans.
When CSC Ltd. in Warren shut down in 2001, for example, the PBGC eventually took over its pension plan and began paying benefits to its retirees.
The situation is different, Speicher said, when a business owned by a larger parent company finds itself unable to continue its pension responsibilities.
In that case, he explained, the PBGC can go to the parent or its other companies for money to fund the pension plan of the struggling company.
The PBGC would try to work out an arrangement with the parent company, he said. Failing that, the agency would go to court to recover the money.
Speicher said he could not comment specifically on WCI, but he acknowledged that the steelmaker seems to fit the profile, since it is owned by Renco and some of Renco's other businesses are profitable.
One steel industry analyst theorized that the possibility AM General could end up funding WCI's pension plan might be a good reason for Rennert to keep the steelmaker alive with a healthy transfusion of cash.
"Several of Renco's holdings are troubled, but he does have one very, very valuable property, AM General. He has one jewel," said Michael Locker, a New York business consultant who specializes in corporate restructuring.
Here's the situation
Locker said the PBGC would have the right to go after the steel mill's wealthy parent company, Renco, to fund the pension plan.
"That could be a factor for why Ira Rennert might want to keep WCI going," Locker said. "Otherwise, somebody could reach into those other assets to recover the cost of running WCI's pension plan."
WCI's pension plan is underfunded, but the company has been making the minimum required payments, funneling a total of about $41 million into the fund in 2000, 2001 and 2002.
Officials expect to pay a total of $70.6 million in 2003, 2004 and 2005, according to reports the company filed with the federal Securities and Exchange Commission.
Rennert would not talk to a reporter to discuss his plans for WCI. His spokesman, Jon Goldberg, said Rennert "has never done media interviews."
Goldberg noted that Rennert has already offered to lend WCI $10 million as part of its debtor-in-possession financing, a funding package to provide operating capital while the company works to reorganize under bankruptcy protection. The arrangement must be approved by the U.S. Bankruptcy Court in Youngstown.
Renco also chipped in an extra $15 million to help the company make ends meet in March, several months before its bankruptcy filing.
Press release
WCI has said in press releases that Renco has been "receptive" to the idea of making an additional "substantial cash infusion" as part of a plan to make the mill profitable again. That plan would also include changes in the company's contract with the United Steelworkers of America and changes in its payment structure to its lenders.
Goldberg said the parent company "obviously hasn't been decided" how much more money Renco might be willing to funnel into WCI's turnaround effort. "It would be premature to say," he said.
The Hummer, which sells for $100,000 or more, its smaller H2 and their military counterpart, the humvee, are making millions for AM General. The company makes the SUV for General Motors and sells its military vehicles to the U.S. Department of Defense and 50 other countries.
A report in the Sept. 15 edition of Business Week magazine said Rennert was recently offered $750 million for AM General but refused to sell. Goldberg would not confirm the offer or say whether Renco is looking for another buyer.
Goldberg did say, however, that he believes Renco is not shopping for a buyer for WCI. "To my knowledge, the interest is for the company to restructure," he said.
& lt;a href=mailto:vinarsky@vindy.com & gt;vinarsky@vindy.com & lt;/a & gt;