Competing offers from lenders encourage company officials

The company is the area's largest steelmaking employer with 1,800 workers.
By CYNTHIA VINARSKY
VINDICATOR BUSINESS WRITER
YOUNGSTOWN -- Two of WCI Steel's major lenders are vying for the right to lend the troubled steelmaker more money, an unusual twist for any company facing its first week in bankruptcy court.
WCI, which filed for protection from creditors this week under Chapter 11 of the federal bankruptcy code, had already negotiated a $100 million financing arrangement with Congress Financial Corp., Bank of America and a group of other lenders. WCI's parent company, The Renco Group, had also offered to lend an additional $10 million.
The arrangement, known as debtor-in-possession financing, aims to give a struggling company capital to continue operating while it works to reorganize its debts.
Another offer
But a competing lender, Harbert Management Corp., came forward Wednesday, offering to lend more money to WCI at what its attorney said is a lower cost to the company. Harbert is the largest stakeholder in the company's $300 million in long-term bonds debt.
"It seems like a very positive sign," said John P. Jacunski, WCI's chief financial officer.
Stephen D. Lerner of Squire, Sanders & amp; Dempsey, legal counsel for WCI, called the dual financing offer "extremely unusual on the positive side."
"To have lenders competing to lend money to the debtor shows a lot of confidence in the company and gives us great hope that we will be able to succeed in reorganization," Lerner said.
Founded in 1988, the company is the region's largest steelmaking employer with 1,800 hourly and salaried workers. Its average monthly payroll is $6.3 million. WCI is the only company still producing steel from raw materials in the Mahoning Valley.
Decision
Judge William Bodoh of the U.S. Bankruptcy Court in Youngstown approved the company's decision to accept the original debtor-in-possession financing package on an interim basis while WCI officials analyze the second offer and decide which one to take.
The next hearing is set for 1:30 p.m. Oct. 2. The company will also seek Judge Bodoh's approval for Renco's $10 million addition to the loan package.
Atty. Thomas Moers Mayer, who represents Harbert Management and several of WCI's other bond holders, said the $100 million DIP financing arrangement actually includes at least $75 million that the steel company has already borrowed. The old debt had to be rolled into the DIP package.
He said the Congress Financial-Bank of America group is offering to lend about $11 million in new money for one year, and it would charge a $1.5 million fee, plus interest.
Harbert is offering to lend $20 million in new money for 18 months, Mayer said, and its fee would be $200,000. Both lenders would charge the same interest rate, an amount 3.5 percent higher than their most favorable commercial rate.
Like what they see
"It is a rare case where, on the first day of a bankruptcy case, two lenders are willing to lend the debtor more money," Mayer said.
"We would not be willing to lend $20 million if we did not believe that this company has a future. We like the plant, the management and the work force. We believe WCI is an impressive company."
Hearing first day motions for WCI's Chapter 11 case, Judge Bodoh approved the company's plan to continue operating, to pay its employees' wages and benefits, its suppliers and its utility bills.
WCI has been losing money since the fourth quarter of 2000, blaming a sluggish economy, competition from cheap foreign steel imports and skyrocketing energy costs.
The consolidation of the domestic steel industry, with competing steelmakers like International Steel Group and U.S. Steel securing more cost-effective contracts with their labor unions, put added pressure on the company in recent months.
Company officials have been working since May on a reorganization plan aimed at making the company profitable again. The plan would involve negotiating new work rules with the United Steelworkers of America, which represents its hourly workers, negotiating a new debt repayment plan with its bond holders and more capital from its owner, The Renco Group.
vinarsky@vindy.com