US Steel Canada should rank meeting its pension obligations ahead of paying inter-company loans to its Pittsburgh-based parent, says the Ontario government.
The province filed a “notice of limited objection” Friday to a proposed arrangement for US Steel Canada to obtain financing from its parent.
A court will review the proposal Monday. US Steel Canada filed for creditor protection in September.
The Canadian unit is insolvent, and its US-based parent has proposed advancing $185 million in “debtor in possession” financing to let it keep operating for another year.
But the province says it objects to parts of the proposal, and has a right to be heard because it extended $150 million in financing to the troubled company.
The province says it wants to make sure that the parent company, US Steel, “does not put the repayment of inter-company loans ahead of its pension obligations.”
Documents filed with the court show that US Steel Canada owes its parent $209.4 million in secured loans and $1,857.5 billion in unsecured loans. The parent is also owed $174.8 million in trade payments.
At the same time, US Steel Canada has a pension fund deficiency of $838.7 million.
If the company can’t make good on its pension obligations, the pension fund would have to be topped up by the province’s Ontario Pension Benefits Guarantee Fund.
That, plus the provincial loan, could set up an argument over who gets first call on whatever money is available for creditors — the parent company, as the biggest creditor, or the province as the pension guarantor as well as a lender.
Hundreds of other creditors are also owed money.
In its court filing, the province says that the U.S. parent company is itself on the hook for $100 million in pension obligations for US Steel Canada.
The province argues that the parent company’s proposed financing plan would allow the parent to shift that obligation onto the shoulders of the Canadian company’s other creditors.
It also objects that the proposed arrangement would sell off US Steel Canada’s Erie and Hamilton assets separately, in a two-step process.
“It is not clear whether separate sale processes would be likely to maximize the value of US Steel Canada’s assets and property,” the province argues.
It also notes with concern that the US parent company is acting in many roles, on both the debtor and creditor side of the issue.
Those roles, it says include “controlling parent and sole shareholder of US Steel Canada; guarantor of $100 million in US Steel Canada obligations; purported secured creditor; purported unsecured creditor; integrated business partner; and potential bidder for US Steel Canada’s assets.”
In a separate filing, the United Steelworkers agrees with many of the province’s points. The union represents 1,600 workers, and 10,000 former and retired employees.
The steelworkers say they must be consulted in the company’s future, because the union’s present and former members have as much as $1.5 billion at stake in pensions and wages.
Hamilton MPP Paul Miller criticized the parent company’s move, saying it is set up to make sure the U.S. parent gets its money out of Ontario first and gets a first shot at buying the Lake Erie Works – the Canadian unit’s prize asset.
“Meanwhile, the application leaves workers and retirees at the end of the line,” he said.