RG Steel asset sales hinge on unresolved issues; corrugating deal OK'd

By Jim Witters

Wilmington, Del., Aug. 23 - RG Steel, LLC received approval for the $7 million sale of its specialized corrugating division to Nucor Corp., but the closing of the sales of the Sparrows Point, Md., and Warren, Ohio, facilities were delayed by unresolved issues during an Aug. 23 hearing in the U.S. Bankruptcy Court for the District of Delaware.

At the hearing, Judge Kevin J. Carey also approved an agreement between the debtors and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USW).

Warren objections

ArcelorMittal Warren Inc. objected to the sale of the Warren facility, claiming it holds title to an easement on the property and also holds a 24-year-old option to buy the a portion of the property that includes the boiler plant and power plant.

The claim to an easement is not being questioned.

But Greg Werkheiser, representing the debtors, said ArcelorMittal's attempt to invoke a purchase option has no legal merit and should not prevent or delay the proposed $16 million sale to CJ Betters Enterprises Inc.

Betters emerged as the successful bidder during an auction.

Joshua K. Brody, representing the official committee of unsecured creditors, said Betters has agreed to delay demolition of the facilities for nine months while RG Steel attempts to locate a company willing to reopen the shuttered facility and restart operations.

The possibility that ArcelorMittal might buy the power plant and boiler plant would severely hamper those efforts, jeopardizing the potential of restoring 1,100 jobs to the community, Brody said.

As for the legal arguments, the purchase option is an executory contract, not a covenant that goes with the land, Werkheiser told the court.

"If they have a right, it is a very limited right," that does not guarantee they will acquire the property, he said.

ArcelorMittal attorney Stephen Lerner said the option is a recorded covenant recognized under Ohio law and cannot be expunged by the bankruptcy court.

Lerner also said that if someone steps forward with a viable plan to operate the steel plant, ArcelorMittal will engage in good faith negotiations for use of the boiler and power plants.

ArcelorMittal is the only U.S. competitor for the specialized carbon steel produced at the Warren facility.

While issuing no ruling during the hearing, Carey told Lerner that "the debtors have given me any number of reasons you should lose."

Carey instructed the parties to continue negotiations and inform him if an agreement is reached.

He said he plans to issue a ruling on the matter before Aug. 31.

Sparrows Point issues

Four companies with equipment and inventory on the site of the Sparrows Point, Md., facility objected to a provision in the proposed sale agreement that requires them to remove their property from the site within 21 days or forfeit it to the purchaser.

The provision is part of the sale approved by the court on Aug. 16.

Environmental Liability Transfer, Inc., Commercial Development Co., Inc. and Sparrows Point, LLC were named the successful bidders at auction with a cash purchase price of $72 million.

However, Vanomet International AG, Oxbow Carbon & Minerals LLC, Kinder Morgan Bulk Terminals, Inc. and Pinney Dock & Transport LLC told the court Aug. 23 that they were unaware of the provision until the day of the sale hearing and had no time to assess its significance and impact before the court granted approval.

Vanomet has 180,000 metric tons of coke - the solid material derived from the distillation of low-ash, low-sulfur bituminous coal - at the facility, and Oxbow has 10,550 metric tons. Kinder Morgan and Pinney have millions of dollars worth of equipment there.

Attorneys for the four companies said it will take several months to remove their property from the premises.

For example, Oxbow said its coke inventory would fill 700 trucks or 100 rail cars.

Carey said he was not aware during the sale hearing that this provision may prove so troublesome. He said he was "unhappy" that the buyer and the debtor failed to disclose the potential problem.

Under questioning by the judge, Matthew Ward, representing the buyers, said there was no attempt to reap a windfall profit by declaring the remaining inventory "abandoned."

Carey told him his clients "are not going to get" the coke and iron ore on the property.

Ward said he has been working with the parties and hopes to resolve the issues before a scheduled Aug. 31 hearing. Ward's clients bought everything but the land, which was purchased by Environmental Liability Transfer.

William Sullivan, representing Environmental Liability Transfer, Inc., suggested making the Aug. 31 date a status conference, hoping a resolution is struck before then.

Carey scheduled a telephonic status conference for 4 p.m. ET on Aug. 29.

Union agreement

As previously reported, under the settlement, the company and the union have agreed that the USW collective bargaining agreements will be terminated as of Aug. 31.

The other settlement terms include the following:

• Supplemental unemployment benefits for all of the company's employees will be deemed terminated as of Aug. 10, as will RG Steel's incorporation agreement with the Steelworkers' Pension Trust. This will halt all required contributions to the Steelworkers' Pension Plan;

• All active and retiree benefit programs described in the basic labor agreement are terminated effective Aug. 31;

• RG Steel will deposit $6.5 million from the proceeds of asset sales into escrow to pay medical and prescription drug claims incurred on or before Aug. 31 and received on or after Aug. 11;

• In consideration for the USW's agreement to enter into the settlement, the company will deposit $210,000 into escrow, which will be used by the USW to address other employment claims;

• RG Steel agrees that during the term of the settlement it will not utilize outside contractors to perform any of the asset protection functions currently being performed by bargaining unit personnel or to conduct steel operations if the company should restart steel operations during the term or for a period of one year from the effective date, whichever is longer;

• The wage rates of all active employees working in any capacity at all facilities covered by the basic labor agreement, except those working at the Mountain State Carbon facility, will be $20.00 per hour as of the effective date of the settlement, regardless of the employees' qualifications, previous job classification or seniority and regardless of the nature of the work performed;

• No employee at the specified facilities will be eligible to earn differentials, premium pay or incentive pay, and all existing red circle rates will be eliminated; and

• Successorship of the basic labor agreement will survive the termination of the settlement and/or the basic labor agreement and will continue for one year from the settlement effective date.

RG Steel, a Sparrows Point, Md., flat-rolled steel processor, filed for bankruptcy on May 31. The Chapter 11 case number is 12-11661.

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