Algoma Steel reorganization plan gives noteholders $150 mln debt, 75% of equity

New York, Oct. 24 - Algoma Steel Inc. filed in court a plan of reorganization under the Canadian Companies' Creditors Arrangement Act which will give holders of the existing first mortgage notes new debt and 75% of the reorganized company's equity.

Under the plan, holders of the C$500 million (U.S. $349 million) first mortgage notes will receive new notes for $150 million and 75% of the new common stock of Algoma Steel.

Existing shares will be canceled.

As part of the proposal, Algoma said stakeholders will make contributions that will significantly reduce costs and improve cash flow in future years. The Sault Sante Marie, Ont. steelmaker added that those contributions will allow it to continue to operate viably.

Savings in 2002 and 2003 will be approximately $150 million thanks to interest savings on the first mortgage notes, reductions in employment costs and pension costs and other contributions.

The reorganization plan is conditional on the agreement of employees to new collective bargaining agreements. Changes will include wage and benefit reductions, reduced vacation, pension benefit changes and manning reductions.

Employees will receive 20% of the new common shares.

Algoma said it is finalizing arrangements with the Pensions Benefit Guarantee Fund to restructure its pension liabilities. The company intends to provide retirees with their current level of pension benefits but will eliminate future indexing.

Unsecured creditors will receive a total of $2 million in cash and 5% of the new common shares in satisfaction of their claims.

The new board of directors will have 10 members, including three nominated by the United Steelworkers of America.

Approval of the plan is also required by each of the classes of creditors.

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