Sale of ISG won't affect WCI, official says

Attorneys are wrapping up their arguments in WCI's Chapter 11 case.
By CYNTHIA VINARSKY
VINDICATOR BUSINESS WRITER
AKRON -- Monday's sale of Cleveland-based International Steel Group Inc. to a Dutch-owned steelmaker probably won't have any short-term effect on WCI Steel in Warren as it works to emerge from bankruptcy protection, a company official said.
Edward Caine, WCI's chief restructuring officer and former president, said the $4.5 billion cash and stock acquisition by steel tycoon Lakshmi N. Mittal is just another step in the consolidation of the steel industry.
"In the short term, I don't believe it means anything to WCI. I don't believe it will hurt the niche business we're in," he said.
Caine said it's too soon to say how the change will affect the domestic steel industry long-term. WCI produces 185 custom and commodity grades of flat-rolled steel, he said, so ISG, U.S. Steel and other large steelmakers are not its major competitors.
Caine commented on the deal during a break at federal bankruptcy court in Akron on Monday where he and WCI's millionaire owner Ira Rennert were sitting in on closing arguments in the Warren steel mill's Chapter 11 bankruptcy case.
Arguments to continue
Bankruptcy Judge Marilyn Shea-Stonum, charged with approving a reorganization plan for WCI, decided to continue the summary arguments this morning after a five hour hearing Monday.
The judge is considering two plans, one by WCI with Rennert's financial backing, and the other by a lending group which holds $324 million in WCI bonds secured by its plant, property and equipment. Both want to continue operating the mill.
Attorneys have said the judge will likely take a week or more to make a decision.
Two New York investor groups, MIC Capital Inc. and D.E. Shaw, have also submitted a joint plan for buying and operating the company. Their offer was submitted late, however, so it will be moot unless Judge Shea-Stonum rejects both the WCI plan and the bondholders' plan.
Key issue
The judge said Monday that she considers the valuation of WCI a "very central issue" in the case.
She criticized the work of John J. Connolly II, an officer and appraiser for Nationwide Consulting Co. in New Jersey, whom WCI hired to appraise its physical plant. Connolly appraised the mill at $94 million in September 2003, and raised the total to the $100 million to $110 million range in June.
Judge Shea-Stonum said she was "significantly troubled" about Connolly's failure to provide written documentation for his appraisal and was "very, very troubled" about hand-written notes that seemed to contradict the final appraisal in some cases.
WCI's plan to buy the company out of bankruptcy includes issuing $94 million in new notes to the secured bondholders and paying them an additional $18 million over five years, starting in 2006, provided WCI's earnings remain strong.
Appraisal methods
The judge also faulted the bondholders' experts, who used different appraisal methods to conclude the company's collateral is worth about three times the WCI estimate.
"My big beef with your expert is, you have to have a lot more respect for things that are not part of your clients' collateral package," the judge told the bondholders' attorney. She argued that intangible things like customer relationships have a value that is not directly tied to the plant, property and equipment.
Bondholders' attorney Thomas Moers Mayer argued that WCI is "a gem" that is "making a fortune." He said his clients believe the mill will see its most profitable year ever in 2005, and they want a larger share.
vinarsky@vindy.com