Stelco board approves second amended plan in response to bondholder concerns

New York, Dec. 8 - Stelco Inc.'s board of directors approved a second amended restructuring plan for consideration by its creditors that the company said takes into account concerns raised by bondholders.

Affected creditors will be asked to vote on the amended plan at the meetings to be resumed Friday.

Stelco said the second amended plan provides an opportunity for equity participation by the unsecured creditors and makes that opportunity optional.

"We believe that this adjustment, together with the other elements of the second amended plan - which are identical to those in the plan of Dec. 5, 2005 - address the interests of our stakeholders in a fair and responsible way," said Stelco's president and chief executive officer Courtney Pratt in a news release.

Unsecured creditors will continue to receive a pro rata share of secured floating-rate notes. The cash pool, which had been $137.5 million, will now range from a minimum of $106.56million to a maximum of $137.5 million. In addition to their share of 1.1 million new common shares, affected creditors may elect to receive up to an additional 5.625 million new common shares.

Tricap Management Limited, Sunrise Partners LP and Appaloosa Management LP will commit to purchase a total of 19.375 million new common shares, funding $106.56 million of the cash pool. If affected creditors elect to take cash in lieu of exercising the option to acquire their portion of the 5.625 million additional new common shares, Sunrise and Appaloosa will acquire those shares, providing up to an additional $30.94 million to the cash pool.

The plan was previously amended to exclude what had been 9% unsecured convertible notes converting into 25 million common shares of the company. Under the first amended plan, the notes were replaced by a proposed cash component, under which affected creditors will receive a share of $137.5 million.

The funding for this is to come from a proposed subscription for common shares from Tricap Management Ltd. and other equity investors. The cash component would amount to about 55% of the face value of the expected $250 million issuance of unsecured convertible notes.

The original plan reflected the terms of the stakeholder agreement announced by Stelco on Nov. 23.

Amended plan details

The second amended plan is based on:

• The availability of a $600 million asset-based revolving loan facility;

• The availability of a $375 million revolving bridge facility being negotiated with Tricap;

• A $150 million unsecured subordinated 1% note, issued to the Province of Ontario in exchange for a $150 million cash contribution.

If the pension solvency deficiency is fully funded by year 10, then 75% of the note would be forgiven at maturity, with the balance payable in cash or shares;

• Warrants, with a seven-year maturity, issued to the Province of Ontario to purchase up to 8% of the fully diluted equity (or 2.3 million new common shares) at an exercise price of $11 per new common share.

• Existing secured operating lenders will be repaid in full;

• Unsecured creditors will receive a share of $275 million in secured floating-rate notes with interest of Libor plus 500 basis points if paid in cash or Libor plus 800 basis points if paid in kind at the company's option and a 10-year term, payable in cash on maturity;

• Unsecured creditors will also receive a share of a cash pool consisting of a minimum of $106.56 million and a maximum of $137.5 million;

• And unsecured creditors will receive a share of 1.1 million new common shares with a right to receive up to an additional 5.625 million new common shares in lieu of $5.50 per share out of the cash pool;

• The cash pool will be funded as follows: Tricap will commit to purchase 9.375 million new common shares at $5.50 per share, funding the cash pool with $51.56 million. Sunrise and Appaloosa will each commit to purchase 5 million new common shares at the same price, for a total of 10 million new common shares, funding the cash pool by $55 million. Sunrise and Appaloosa will also acquire, on a 50/50 basis, any of the additional shares not purchased by affected creditors by an agreed date, at a price of $5.50 per share. This could fund the cash pool up to an additional $30.94 million;

• The Stelco Pension Plans will receive an upfront cash contribution of $400 million and fixed annual cash funding payments of $65 million each year between 2006 and 2010 and $70 million each year between 2011 and 2015.

According to the release, there may be increased payments through annual cash sweep payments, beginning in 2007, based on cash flow and liquidity tests. Any solvency deficiency at the end of 2015 will be funded through the normal five-year pension funding rules.

A six-month grace period on cash funding payments will be provided during the first half of 2006, increasing Stelco's liquidity on emerging from court protection.

• The existing shares will be effectively canceled.

Under the proposed plan sponsor agreement, the size of Stelco's board of directors will be fixed at nine members. Tricap Management will have the right to name four of the directors. The other capital providers subscribing for common shares will have the right to nominate one each. The remaining directors will be chosen through a consultative process.

The plan sponsor agreement requires plan implementation to occur no later than March 31. Stelco said it expects to implement the plan early in 2006 and, if possible, before March 31.

Stelco, a Hamilton, Ont.-based steel company, filed for bankruptcy under the Companies Creditors' Arrangement Act on Jan. 29, 2004 in the Ontario Superior Court for Justice.

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