Posted on 05/19/2003 12:48:15 PM PDT by mountaineer
Weirton Steel Corp. has filed for federal Chapter 11 bankruptcy protection, it was confirmed today by company officials.
Formal announcement was expected to be made during a press conference today, but sources within the company confirmed this morning that the company would be joining many others in the domestic steel industry, including Wheeling-Pittsburgh Steel Corp., in seeking reorganization under bankruptcy law.
Rumors that Weirton Steel was planning to file for bankruptcy protection have been circulating for several days but, until today, had been discounted by company officials. The firm's stock on Friday sank to a 52-week low of 12 cents per share before rebounding slightly to 13 cents.
Weirton Steel had been hailed by some industry observers as a major success story several years ago, when the company became part of the ESOP - employee stock ownership plan - movement, with workers owning the firm. But during the past five years, Weirton Steel has suffered substantial losses, reportedly of more than $700 million.
Company officials during recent months had attempted to put in place a new plan to save money, by asking both the firm's 3,600 active employees and its 4,600 retirees for concessions. Those concessions, including cutbacks in benefits to retirees, had been expected to save about $72 million - but many retirees balked at the suggestion. The Independent Steelworkers Union at Weirton Steel already has agreed to substantial concessions, including pay cuts of 5 percent approved in February.
Much of the company's trouble had been blamed on unfair trade practices by foreign steel producers, and Weirton Steel had been a leader among domestic companies in seeking federal action against imports. President Bush last year responded with hefty tariffs on many imported steel products. Other federal programs, such as the "Byrd Amendment" to provide loan guarantees to embattled domestic producers, also were enacted in response to the import crisis.
Weirton Steel had seemed to be an exception to what appeared to be becoming a rule among most domestic producers, however - filing for bankruptcy. Since 1998, about three dozen U.S. steel companies have sought bankruptcy protection.
Weirton Steel Corp., the nation's sixth-largest integrated steelmaker, filed for Chapter 11 bankruptcy protection on Monday.
The West Virginia-based, employee-owned company said it plans to continue operations during the restructuring and has lined up $225 million in debtor-in-possession financing from Chicago-based Fleet Capital Corp., according to the Associated Press.
Perhaps a sign of the impending bankruptcy filing, Weirton Steel last week delayed reporting its first quarter financials with the federal Securities and Exchange Commission.
The company reportedly lost more than $700 million over the past five years, but had been working to cut costs by at least $120 million in recent months.
Weirton Steel had held its own as the domestic steel industry saw more than three-dozen steelmakers file for Chapter 11 protection over the past several years and an industrywide consolidation began to take shape, led by companies such as Pittsburgh-based U.S. Steel Corp.
U.S. Steel is expected to close on the purchase of bankrupt Mishawaka, Ind.-based National Steel Corp. later this quarter, while Cleveland-based International Steel Group Inc. acquired bankrupt LTV Corp. and Acme Metals before closing earlier this month on the purchase of bankrupt Bethlehem Steel Corp.
Many within the industry blame the cheaper foreign steel that began flooding the United States in the 1990s for driving the domestic steel industry into financial trouble.
WEIRTON, W.Va., May 19 /PRNewswire-FirstCall/ -- Weirton Steel Corp. (OTC Bulletin Board: WRTL) today announced it has filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The company filed the petition today in the U.S. Bankruptcy Court for the Northern District of West Virginia in Wheeling.
Weirton Steel emphasized that normal operations and customer service will continue without disruption, including sales, production, order processing and shipments. The company has secured a $225 million debtor-in-possession (DIP) financing facility to furnish sufficient working capital for its operations.
"Weirton Steel is at a crossroads in its history. We must become as competitive as possible and return to profitability so that we can invest in our facilities and pursue strategic growth. Reorganization will stabilize our financial outlook, achieve vital cost savings and help us become a stronger, more competitive company," said John H. Walker, Weirton Steel president and chief executive officer.
The reorganization is necessary for three major reasons:
1. Despite the positive impact of a comprehensive restructuring of the company in 2002 and additional cost-saving efforts this year which improved efficiency, reduced employment costs and addressed expenses and maturities of long-term debt, Weirton Steel still faces financial challenges. These challenges include declining market conditions and overwhelming post- retirement obligations, which include pension funding, retiree healthcare benefits and life insurance, known as legacy costs. Reorganization through the court will enable Weirton Steel to address legacy costs as well as burdensome contracts which cannot be accomplished on an out-of-court basis.
2. Reorganization also will enable Weirton Steel to improve its liquidity while continuing normal operations as an independent company. New financing facilities available only in the context of a bankruptcy filing will provide additional needed liquidity to support operations.
3. Weirton Steel's goal is to use the reorganization process to become as competitive as possible in the rapidly consolidating steel industry. The "new industry model" - fewer and larger steel companies that have consolidated production and significantly reduced costs - has changed the domestic industry. Consolidated companies have gained significant competitive advantages by substantially reducing their operating expenses, primarily by buying assets in bankruptcy sales resulting in minimal or no legacy costs. By contrast, since it has been maintaining a traditional pension plan, the company's pension liabilities have dramatically grown in the past several years largely due to the prolonged stock market downturn which has eroded pension assets, reduced returns and increased the calculation of obligations. Outside of reorganization, the company can spread out some of its legacy obligation payments, but not reduce them to competitive levels.
"The American Steel industry is in a state of siege and transformation. The challenges facing Weirton Steel are the same as those affecting our entire industry. In the past five years, 36 domestic steel companies have filed for bankruptcy protection. As this trend continues, large well-capitalized companies are creating a `new industry model' by acquiring assets, consolidating production, slashing costs and cutting jobs," Walker said.
Weirton Steel will maintain control and possession of its assets while undergoing Chapter 11 reorganization, instead of having a court-appointed trustee operate the company. The new DIP financing secured by the company was provided by Fleet Capital Corp., Chicago, as agent, and the rest of Weirton Steel's current bank lending group, and a new term lender, Manchester Securities, New York City.
"This financing is an expression of confidence in our company. Weirton Steel is now focused on utilizing the reorganization process to achieve additional cost savings that could not be attained through out-of-court restructuring efforts," Walker said.
"In the past year, we did everything we could do outside the bankruptcy venue before taking this necessary step. Our previous initiatives strengthened the company, but it became increasingly evident in the current industry climate that Chapter 11 reorganization is the only remaining solution to address our liability issues. With the support of our employees, customers, vendors and other stakeholders, our goal is to preserve the value of our business and emerge from this voluntary process as a stronger and more competitive producer."
Walker emphasized the reorganization will not disrupt the company's operations or alter its historic commitment to its employees, customers and the region.
"Weirton Steel remains a viable business that is deeply committed to our employees, the city of Weirton and the state of West Virginia. We are taking this step to preserve our company and jobs that benefit residents of West Virginia, Ohio and Pennsylvania. In reorganization, we will be working to develop a plan to keep our core operations and facilities intact," Walker commented.
"We expect the court to approve our request to continue to pay all salaries and wages."
Weirton Steel also is seeking court approval to form a retiree committee to assist the company in addressing the legacy cost issue. Prior to the court filing, the company took aggressive action in the past two years to reduce costs, which management believes better positions the company to develop a reorganization plan.
Weirton Steel's 2001-2002 out-of-court restructuring included: a $50 million cost-reduction through job eliminations; a $40 million improvement in liquidity through vendor investment programs; an additional $35 million liquidity boost by securing a new senior credit facility; and a $115 million reduction in its public debt through two exchange offers.
This year, the company lowered its employment costs by $38 million on an annual basis by negotiating labor agreements with the Independent Steelworkers Union and the Independent Guard Union. The contracts included elimination of a planned wage increase, a 5 percent wage reduction and a freeze on pensions. Non-represented employees incurred similar concessions.
Shares of the company's common stock (WRTL) continue to trade on the OTC Bulletin Board. The company has not set a target date for emergence from Chapter 11, but Walker stressed the company's strategy is to move quickly.
"Our goal is to emerge from this process, as soon as we can, as a stronger, more competitive company," Walker said. "There is much work ahead. Time and time again, our employees have proven their ability to overcome challenges and handle change. By working together, we can succeed and preserve Weirton Steel and its future."
Here's the Reuters report:
NEW YORK, May 19 (Reuters) - Weirton Steel Corp. on Monday said it has filed for bankruptcy protection, the latest U.S. steelmaker to succumb to weak demand and intense overseas competition.
The Weirton, West Virginia-based steelmaker filed a voluntary petition for reorganization under Chapter 11 bankruptcy rules in federal court in Wheeling, West Virginia. Normal operations will continue, the company said, including all production, sales and shipments.
The company has secured $225 million of debtor-in- possession (DIP) financing to fund its operations during the bankruptcy court process. DIP financing was arranged by FleetBoston, Weirton's existing bank lenders and Manchester Securities.
Weirton said it needs to further slash costs even after a restructuring effort last year that cut jobs, trimmed overhead expenses and addressed long-term debts. The company says it faces weak market conditions and obligations to retired employees such as pensions, health care and life insurance.
By declaring bankruptcy, Weirton says it will be better able to seek reductions to "legacy" employee costs and other "burdensome" contracts. "Reorganization will stabilize our financial outlook, achieve vital cost savings and help us become a stronger, more competitive company," Weirton Steel President and Chief Executive John Walker said in the statement.
The company earlier this year noted it had chopped $38 million of expenses through new agreements with managers. It also pursued $10 million of concessions from retirees and $34 million in give-backs from active unionized employees.
Weirton said it will retain control of its businesses and assets during the reorganization. The company observed that 36 U.S. steelmakers have filed for bankruptcy in the past five years. Weirton shares plunged 8 cents, or 65 percent, to 4.5 cents a share in Nasdaq Bulletin Board trading.
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