Just months after emerging from bankruptcy protection, Stelco Inc. has filed a preliminary prospectus for an initial public offering as part of a plan to inject funding into its pension and retiree benefits plans.
On Wednesday, Stelco, now owned by Bedrock Industries, announced it had filed a preliminary prospectus with the securities regulators in each of the provinces and territories. The company, which didn’t disclose a share price, said it would use part of the proceeds to make early payments to its defined benefit pension plan and a trust set up as part of the sale to Bedrock to handle Stelco’s retiree health benefits obligations.
Stelco emerged from bankruptcy protection in June following a long saga under the ownership of United States Steel Corp. A key issue during the restructuring proceedings was the large deficit in the pension plan, as well as the company’s retiree benefits obligations. According to documents filed as part of the preliminary prospectus for the public offering, the company’s aggregate liabilities to provide benefits for current and future retirees was an estimated $870 million as of Dec. 31, 2014. In September 2014, its cash funding obligations for the retiree benefits were about US$42 million per year. Payments to the pension plan were to rise to more than $200 million in 2016 from $70 million.
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The documents filed as part of the preliminary prospectus shed light on the various provisions aimed at funding the pension and retiree benefits plans while capping Bedrock and Stelco’s obligations:
- Except for certain specified contributions to the legacy pension plans, the company has no other funding obligations to them while they’re ongoing. The restructuring arrangements also released the company from any liability for windup deficit funding of the pension plans.
- Defined benefit accruals under the legacy pension plans will cease effective Dec. 31, 2017. The restructuring provides for the establishment of three new defined benefit pension plans for service after Dec. 31, 2017, for about 800 active hourly employees. The company will have to make contributions to the new pension plans of about $4 million per year for the period from Jan. 1, 2018, to Dec. 31, 2027. By Jan. 1, 2028, it will have to fund the new pension plans in accordance with the general funding regime under Ontario’s pension legislation.
- Employees not eligible for the new pension plans will participate in a so-called opportunity plan providing for limited company contributions to a registered retirement savings plan.
- The company is to make a maximum total contribution to the legacy pension plans of $400 million, not including the normal cost contributions for 2017.
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- Administration of the legacy pension plans will transfer to a new permanent administrator. The superintendent of financial services is to appoint the new administrator by Dec. 31, 2017.
- The restructuring provides for setting up a land vehicle to help fund the legacy pension plans and the benefits trust. The entity will sell company lands in Hamilton, Ont., and on the shores of Lake Erie within 10 years, with the proceeds going to the pension plans and benefits trust. The deal also includes a tax arrangement through which the company would direct income tax savings to the pension plans and benefits trust.
- As for the retiree benefits, the restructuring provides for annual contributions by Stelco of up to $15 million for 20 years and advance payments totalling $30 million. The Ontario government agreed to give the company a $22-million loan to assist with the advance payments. If the cost of post-employment benefits for United Steelworkers Local 8782 retirees is more than $40 million over 10 years, the company must fund the deficit. If the cost is less than $40 million over 10 years, the company must pay the difference to the benefits trust.
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In a joint statement issued on Wednesday, Ontario Finance Minister Charles Sousa and Economic Development Minister Brad Duguid welcomed the news of the preliminary prospectus. “Throughout the long restructuring of Stelco, the province’s objective was to ensure a process that would lead to sustainable operations while protecting employees, pensions and the lands,” they said.
“With a combination of repayable loans as well as regulatory and policy accommodations, the government was able to help bring the players together to support a private sector-led, non-subsidized solution that secured Stelco’s standalone commercial viability.”