The hopes of 20,000 local pensioners for a secure retirement have taken a serious blow, but their lawyers say the fight isn't over yet.
A Superior Court judge delivered that blow Monday when he ruled U.S. Steel has proven secured debts of more than $118 million US against the former Stelco. That, along with more than $1.8 billion Cdn in unsecured debts, makes the American parent company the largest creditor in the complicated effort to restructure the struggling Hamilton icon. An additional secured claim for more than $3.7 million is to be decided later.
Normally, secured creditors go to the front of the line to be paid in a restructuring, leaving workers and other creditors to pick over the scraps left behind.
That order, however, will be challenged by pensioners relying on a bit of law called the deemed trust principle they hope will push them closer to the head of the line. The principle holds that because pensions are a deferred wage, workers are entitled to first claim on some of the assets of an employer that goes bankrupt with an underfunded pension plan.
The only way the principle can be defeated is if the process of winding up a pension plan is started before a bankruptcy or creditor protection process begins.
McMaster University business professor Marvin Ryder likes the pensioners' chances with that move.
"I think this will be an interesting trial," he said. "I think their chances of success are about 75 per cent."
The U.S. Steel motion asking for its claims to be accepted as debt was opposed by a coalition of groups including the United Steelworkers union and its Hamilton and Lake Erie locals, an organization of active and retired salaried workers and the provincial government.
They argued through an eight-day trial in January that the American company's claims were nothing more than an effort to recover the $1.9-billion cost of buying Stelco in 2007.
The province argued the security U.S. Steel gave itself over the assets of the Canadian company was unenforceable because Stelco did not have an opportunity to seek alternative financing or to get independent legal and financial advice on the package.
A major fear of opponents has been that if the American company is given the strength of the largest secured creditor, it would shape a restructuring that will leave little or no cash to top up the four main Stelco/U.S. Steel pension plans, currently estimated to be underfunded by as much as $830 million.
In an email exchange, lawyer Andrew Hatnay, acting for the salaried workers' group, said Monday's decision was only on the debt-or-equity questions. The next step will be a decision of ranking proven claims.
U.S. Steel Canada spokesperson Trevor Harris said in an email exchange that the company would not comment on the decision and is focused on working with advisors to review purchase offers tabled during the current sales process. The first phase of that process, the submission of non-binding letters of interest, closed Monday.
Ryder added U.S. Steel's court-approved power in the restructuring could be the first step toward a quick liquidation of the former Stelco after the American parent demands immediate payment of its debts.
"This decision has certainly put (U.S. Steel) in a powerful position," he said. "What they will do with that power will become clear by the end of March.
"Because they are the largest creditor by far, the judge may have to listen to that demand," he added.
In a related development Tuesday, rookie Hamilton East-Stoney Creek MP Bob Bratina was being mercilessly mocked on social media for complaining about his treatment at the recent Stand Up for Steel rally at city hall.
In an email to retired Local 1005 leader Jake Lombardo, Bratina warned "Just remember that the Liberals are now in power and stunts like the NDP rally you held at city hall where you did not even acknowledge the presence of a Liberal MP do nothing to advance your cause. Have your rally in three years if we haven't been helpful, but right now the government in power is not the NDP, nor are they the official opposition. Nothing they said at City Hall made any difference."