WCI STEEL Bondholders file alternative reorganization plan

The union backs WCI's plan, largely because it offers better pension security.
By CYNTHIA VINARSKY
VINDICATOR BUSINESS WRITER
WARREN -- A group of creditors vying for the right to buy WCI Steel out of bankruptcy would get up to 88 percent equity in the new company and a share of the steelmaker's future profits under a reorganization plan the group filed this week.
The secured note-holders, which together hold $324.5 million of WCI's bonds, filed the plan in U.S. Bankruptcy Court in Akron to show how they would buy and operate the Warren steel mill.
They won the right Tuesday to offer an alternative to a reorganization plan proposed by WCI and backed financially by its parent company, New York-based Renco Group.
Under their plan the bondholders would receive $100 million in new, 10-year notes with 9 percent cash interest, plus 40 percent of equity in the new company and the right to buy 48 percent in additional equity for an investment of $40 million.
The WCI-Renco plan would have paid the bondholders $94 million in 10-year notes, at a 6.5 percent interest rate to be paid in cash or notes. The creditor group would get no new equity in the company and no right to buy new equity under the WCI plan, but it would get a share of $5 million to be distributed among unsecured creditors in five years.
Renco's plan
Not surprisingly, Renco would make out much better under its own plan.
WCI's parent would get 100 percent equity in the company, under its own plan, in exchange for a new investment of $35 million and its agreement to back WCI's present and future employee pension obligations.
Under the bondholders' plan Renco would get no equity in the company but would remain liable for its unionized employees' pension plan.
Mike Rubicz, president of United Steelworkers of America Local 1375, said the union remains "very strongly in favor" of the WCI-Renco plan because it provides a more secure pension.
Renco has agreed to assume responsibility for WCI's existing pension obligation under the company's plan and would also provide additional backing for a new pension plan for the reorganized company.
Renco's backing is reassuring, Rubicz said, because the parent company is the wealthy owner of AM General, which manufactures the Hummer and Humvee lines for General Motors.
Note-holders' plan
The future of retirees' pensions is less certain under the secured note-holders' plan. The reorganized company would likely form a new pension plan, but it would not be liable for past pension liability.
Bondholders propose that Renco could continue its involvement as a sponsor of the pension plan, even though it would have no equity in the company.
Should Renco refuse that option, however, they say the plan could be terminated by the Pension Benefit Guaranty Corp., a federal agency that guarantees payment of basic benefits for 35,000 private-sector defined benefit plans. Under a PBGC termination, retiree health benefits would end and retiree pension benefits would likely be reduced.
"It's a big unknown, a big issue for the union, and it's something we're very concerned about," Rubicz said.
Another point in WCI's favor, he said, is that the company has already negotiated a new, tentative bargaining agreement with Local 1375, which represents 1,330 hourly workers. That agreement still has to be ratified by the membership.
Union leaders also negotiated with the bondholders but no formal tentative agreement was reached.
vinarsky@vindy.com