Company's turnaround effort gets swamped by competitors

The Warren steel producer has been bleeding red ink since the end of 2000.
THE VINDICATOR, YOUNGSTOWN, OHIO
By CYNTHIA VINARSKY
VINDICATOR BUSINESS WRITER
WARREN -- With a pack of lean and mean steelmaking rivals nipping at its heels, WCI Steel is seeking refuge in bankruptcy court while officials scramble to turn the troubled company around.
Judge William Bodoh heard first-day motions today on the company's Chapter 11 bankruptcy petition in U.S. Bankruptcy Court in Youngstown. WCI filed its petition Tuesday.
Edward R. Caine, WCI president and chief executive, said the company intends to continue operating and "to fulfill its commitments to employees, retirees and customers without interruption" while it restructures its debts.
Court records show the company has assets worth $352.5 million and debts of $643.3 million.
Officials have been working on a three-part plan to reorganize and reverse the company's losses since May, and they vowed repeatedly to do it without seeking Chapter 11 protection.
Strong competition from International Steel Group, U.S. Steel, Wheeling-Pittsburgh Steel and Duferco Steel forced them to reverse course, said spokesman Tim Roberts.
"It was our sincere intention not to go into bankruptcy, but there's a new economic reality in the steel industry," Roberts explained.
"We're surrounded by competitors with restructured labor pacts and lower cost structures. It got to the point where we had no choice but to seek protection from our creditors so we can reorganize to become a competitive, viable company again."
Chapter 11 of the federal bankruptcy code is designed to allow a company to operate its business with protection from its creditors while developing a plan to resolve its financial problems.
Financing arrangement
WCI has negotiated a $110 million financing arrangement with Congress Financial Corp., Bank of America and the Renco Group, WCI's parent company, to provide capital for salaries, pensions, employee benefits and other operating costs during its reorganization period.
With an average monthly payroll of $6.3 million, WCI is the third-largest industrial employer in the region and has 1,800 hourly and salaried workers.
If the court approves the arrangement, known as debtor-in-possession financing, WCI said it should have the liquidity it needs to emerge from Chapter 11.
Renco Group, WCI's New York parent company, already chipped in $15 million to help the company make ends meet in March, and it will contribute an additional $10 million to the DIP financing package. That's important, Roberts observed, because it shows that Renco is still behind the company and wants to keep it alive.
Mounting losses
WCI has been bleeding red ink for two and a half years or more, with officials blaming skyrocketing energy costs, a tough economy, competition from cut-rate foreign steel and from restructured domestic rivals.
Except for one profitable quarter at the end of 2002, WCI has lost money consistently since the fourth quarter of 2000.
Losses for 2001, 2002 and half of 2003 totaled more than $175 million, and the company has yet to file its third quarter report for this year.
WCI's restructuring plans were announced in mid-May when the company reported a loss of $13.4 million for its second quarter ending April 30 and announced that it would not be making a $15 million interest payment on its secured notes, which were due June 1.
The three-part restructuring strategy would require new commitments from United Steelworkers of America Local 1375, which represents about 1,400 hourly workers at WCI; changes in the company's long-term debt repayment plan; and additional operating cash from the Renco Group.
Roberts said WCI officials have been meeting with the union and discussing manning issues, changes in job classifications and other ways to help the mill operate more cost-effectively. More meetings are scheduled next week with USWA officials in Pittsburgh.
Negotiations
The company is negotiating a new capital structure with WCI's lending banks, he said, looking for ways to reduce its interest payments -- now $30 million a year on a $300 million loan used to make improvements to the mill in the 1990s.
Renco "has indicated that it is receptive to making a substantial capital infusion," according to the company's news release.
With its Chapter 11 filing, WCI joins the ranks of 35 other troubled American steelmakers that have sought bankruptcy court protection since 1997, 17 of which have been forced to liquidate.
vinarsky@vindy.com