Lenders to own new company

The reorganized WCI will be independent for a long time, its president said.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
AKRON -- The wealthy industrialist who controls WCI Steel is turning over ownership to the company's lenders.
The two sides reached a deal Wednesday in U.S. Bankruptcy Court for noteholders to receive nearly all of the stock in a new company that will be created to operate the Warren steel mill. A court hearing is scheduled for March 28 to approve the deal.
The key part of the deal, lawyers said, was the noteholders' agreeing to pay between $15 million and $25 million to help fund the current company's pension fund. The final payment will depend on tax consequences.
Renco Group, which now owns WCI, agreed that it would be responsible for the current pension fund, but the noteholders will create a pension fund for the new company.
Renco is owned by Ira Rennert of New York, who also controls the company that makes the Hummer vehicles for General Motors Corp. David Dichter, a lawyer for Renco, declined to comment after the hearing.
WCI has been making money lately, but a downturn in the market forced it into bankruptcy court in September 2003. Renco had tried to push through its own reorganization plan but was unsuccessful. Noteholders gained the upper hand last year when the United Steelworkers of America reached a tentative contract agreement with them.
In fact, confirmation hearings on the noteholders' reorganization plan were being held this week, along with the settlement talks.
Agreement
Tom Moers Mayer, a noteholders' lawyer, said the noteholders reached an agreement with Renco only on the condition that the case be wrapped up in two weeks. The noteholders, who are owed $260 million, were willing to make the contribution to the Renco-controlled pension fund to speed the conclusion of the case, he said.
Professional fees are mounting, and the company can be more profitable when the new union contract is in place, he said. Also, operating in bankruptcy court doesn't create an "ideal operating environment," he said.
One part of the case that won't be wrapped up in two weeks is the union contract, which must be approved by WCI workers. A union lawyer said the vote can't be held before the March 28 hearing.
The tentative contract would reduce job classifications and give up to 250 workers buyouts of $50,000.
Workers are to receive full pension benefits. Retirees also are to continue receiving paid medical insurance. With Renco assuming the current pension obligations, the federal agency that guarantees pensions agreed to drop a lawsuit that it filed that could have led to a termination of the plan.
Unsecured creditors are to receive between 20 cents and 22 cents on the dollar for their claims. The total amount of payments is expected to be between $8 million and $10 million.
The noteholders agreed to invest $50 million in the reorganized company and will keep the senior management team.
What's ahead
Pat Tatom, WCI president and chief executive, said he's looking forward to discussing business strategy with the board of directors that will oversee operations. The seven-member board would consist of him, four members appointed by the noteholders and two named by the union.
"We will look for how we can build the business," Tatom said.
He said he expects WCI to remain independent for a long time. Its strength will be its small size, which allows it to be responsive to customers and build customer loyalty, he said.
Tatom said he expects the company to hire in the future as workers retire. It will take some time to establish the proper size of the company because operations will be reorganized after the buyouts are offered, he said.
He expects the productivity of the new company to be 40 percent higher than it was 10 years ago.
With the 90 workers who have retired during the bankruptcy and the 250 expected to leave with the buyout, WCI would be left with 1,000 hourly workers.
Tatom said he expects the company to continue to use WCI Steel as an operating name.
The stock held by the noteholders will be publicly traded but it will not be listed on a stock exchange in the near term, Mayer said.
shilling@vindy.com