6 questions about this week's $2.2 billion U.S. Steel decision

A ruling this week was a big victory for U.S. Steel in the long-running saga of its investment in the former Stelco operations in Hamilton and Nanticoke. 

The judge ruled that more than $2.2 billion was to be considered a mix of secured and unsecured debt, not equity.

• Judge rules in favour of U.S. Steel parent's $2.2 billion debt claim
• U.S. Steel Canada set to put Hamilton and Nanticoke plants up for sale again

Had the ruling been for equity, the money the Pittsburgh-based parent invested in the Canadian operations would be pushed to the end of the line behind other debts and obligations, like fully funding the pension fund, in the U.S. Steel Canada insolvency process. 

Here are a key questions about the decision and what it means: 

Who was arguing against this claim and what were their objections? 

There were three main objectors in the hearings on these particular claims. All opposed the idea that the $2.2 billion was debt to be repaid, contending instead it was equity injections infused into a wholly-owned subsidiary by its new parent.

That sum included funds that U.S. Steel paid to acquire the former Stelco and then keep the Canadian operations running from 2007 to 2014, when the Canadian operations were split off from the parent in a Companies' Creditors Arrangement Act bankruptcy protection process.

The objectors to the idea the money was debt, not equity, were:

The province: Lent $150 million to Stelco/U.S. Steel Canada during the last bankruptcy a decade ago. Also doesn't want to be on the hook for gaps in pension payments.

Unionized steelworkers at the national and Ontario offices and locals 1005 and 8782: Fighting for full funding of their pensions, which are underfunded by at least $838 million.

Tag-teaming attorneys for unionized steelworkers and the Ontario government argued the control the U.S. Steel parent had over the former Stelco operations it acquired in Hamilton and Nanticoke in 2007 meant the parent's claims that its $2.2 billion was debt, not equity, should not be granted.

Active and retired salaried steelworkers: Also arguing in protection of pensions and promises made to workers and salaried managers.

Why did U.S. Steel Canada end up with so much money from U.S. Steel? 

U.S. Steel paid $1.9 billion for Stelco in 2007. Going forward, it made funds available to its new Canadian arm in two main loans – a "term loan" and a "revolver loan," like a line of credit, for the Canadian operations to draw on to keep making their payroll. 

Both sides agree that without U.S. Steel parent money flowing after the acquisition of the former Stelco in 2007, the Canadian operations wouldn't have survived the economic downturn on their own. But as the parent sending money to a subsidiary, U.S. Steel had considerable control over the terms offered.

The opponents say the whole debt claims process was a way for U.S. Steel to recoup the cost of buying Stelco to begin with.

Wasn't U.S. Steel Canada idled and shuttered for many of the years in question?

The American parent company had shifted business from the Canadian mills after the economic collapse of 2008 and 2009, as it confronted an extremely rocky time for the steel industry.

The parent permanently shuttered iron and steelmaking at Hamilton Works in 2013 after temporarily halting the work in 2010.

But that wasn't talked about much in this case.

The parties had agreed to steer clear of "conduct-based evidence and argument" in this proceedings and focus strictly on the agreements signed about the financial transactions between the parent and the subsidiary, according to the closing statements made by Gordon Capern, attorney for the unionized steelworkers, last month.

What's the impact on Stelco/U.S. Steel Canada pensioners?

This case was purely to decide whether the money should be considered debt or equity, not to decide who's in what position for any assets that could be distributed if the Hamilton and Nanticoke plants were to be liquidated, for example.

Still, the decision means that U.S. Steel is the largest holder of debt owed by the U.S. Steel Canada, which is now a standalone company. That puts U.S. Steel in a powerful position as the CCAA process continues.

Pensioners fear that that, in turn, means that whatever money there is out of any restructuring of the business will be used up before the underfunded pension funds are topped up.

But the pensioners' attorneys will argue that the U.S. Steel debt still won't come before the pension funds. And they also say they're considering appealing the debt-equity decision.

As much as this was a victory for U.S. Steel, it's still not the last word for the pension fund.

Does anything change immediately?

In short, no. This is one more step in the ongoing U.S. Steel/Stelco/U.S. Steel Canada saga.

What impact will this have on the sale offering?

For buyers interested in U.S. Steel Canada, the last day to submit a non-binding letter of interest was Monday – the same day the judge issued his decision.

While bidders probably would've liked to know about such a large liability pending the decision in this case, nothing about the debt/equity finding has an impact on the ability of a bidder to decide to buy the company. 

What else do you want to know? Leave a comment below or email reporter Kelly Bennett at [email protected].