For those who have just returned from a decade-long trip to another planet, it must seem like nothing has changed: Stelco Inc. is still the name of a Hamilton-based steel company.

But despite the familiar sign, much has changed and nothing more dramatic than the company’s recent emergence from bankruptcy protection. Make that its second emergence: the first was in 2007, three years after being granted protection, when U.S. Steel bought Stelco for US$1.1 billion and renamed U.S. Steel Stelco.

After its second journey through the process, a 33-month trip, Stelco, founded in 1910, has emerged as a much leaner entity with 2,200 employees (down from about 3,600 when U.S. Steel bought it a decade ago). It also has a new owner.

Last December, U.S. based Bedrock Industries, a “privately funded holding company” agreed to acquire U.S. Steel Stelco. (Part of the deal was a name change.) It’s understood the buyer invested about $70 million into the “new” Stelco and has said it will kick in $250 million over the next five years.

The proposed transaction came after the buyer reached certain agreements with other stakeholders, including the Ontario government and the unions.

One-month back the Ontario Superior Court of Justice sanctioned a second amended and restated plan of “compromise, arrangement and reorganization” pursuant to which the sale and restructuring of Stelco was implemented. 
One week back, the day before Canada’s  150th birthday, the process was finally wrapped.

And that brought an end to almost three and a half years of work for Thornton Grout and Finnigan LLP‎. That firm was retained by U.S. Steel, the parent of U.S. Steel Stelco, about a year before the Canadian unit entered creditor protection. (The idea was to try and arrange a deal before the filing. U.S. Steel favoured liquidation.)

U.S. Steel’s time in Canada proved hardly stellar. When granted protection in 2014, U.S. Steel Stelco had incurred US$2.4 billion in aggregate operating losses over the previous five years, had a US$1 billion pension funding gap and had broken commitments on employment levels and production. U.S. Steel had advanced Stelco about $2 billion in loans – which weren’t repaid. All it received back was $127 million to settle secured claims and a release from all parties.

Once Stelco was granted protection, the negotiations, and they were extensive, started. Notes Rob Thornton of Thornton Grant: “We were extracting a fully integrated Canadian subsidiary (of U.S. Steel) to make it operate on a stand-alone basis.”

That work included unwinding the shared services agreement, which covered information technology, intellectual property and iron ore pellet supply. To get the work done, Thorton’s firm linked up with another boutique law firm, Wildeboer Dellelce. The two firms had worked together on the restructuring and sale of Guestlogix.

“Our two firms teamed up, as we have done on many occasions, to service the needs of a client in a multi-faceted, complex transaction,” said Perry Dellelce. “In my view the legal industry is transforming so that transactions of this nature will be serviced by either full-service international law firms or specialized firms addressing certain segments of the deal.”

Complicating the Stelco deal were operational issues (including relations with the unions, a large pension deficit, and inadequate finances to fund post-employment benefits), the balance sheet, the provincial government (which was also a creditor, but which had to sign off on pension matters) and environmental issues.

The latter issues were resolved innovatively. In effect the land that houses Stelco’s operations in Hamilton has been transferred to a trust and the “new” Stelco will rent from the trust. If and when the land is sold, the proceeds will be used to repay government loans and help fund the pension deficit.

Financial Post

bcritchley@postmedia.com