Algoma plans cuts for survival

Sault Ste. Marie, Ont.-based Algoma Steel (ALG-T), Canada’s third-largest steel producer, has filed a plan of arrangement and reorganization under the company’s Creditors Arrangement Act.

The plan calls for cuts to workforce, wages and benefits, vacation, pension benefits and mortgage notes. The cuts are expected to generate savings of about $150 million per year in 2002 and 2003.

The century-old steelmaker employs about 4,000 workers and has about 8,000 pensioners on its payroll. The company pays $300 million to employees and pensioners each year.

The company is currently finalizing arrangements with the Pensions Benefit Guarantee Fund to restructure its pension plan liabilities such that the benefits of current retirees will remain unchanged. Future indexing for retirees will be eliminated under the Plan.

The plan will also seek contributions from stakeholders to significantly reduce costs and improve cash flow to allow the company to continue operations.

Under the plan, the holders of the existing $550 million first mortgage notes will receive new notes for $150 million plus 75% of the new common shares of the company. Algom’s unsecured creditors will receive a total of $2 million in cash and 5% of the new common shares. Algoma employees will receive the remaining 20% of new shares. Existing common shares will be cancelled.

The plan also contemplates a new board of directors comprising 10 directors, including three nominated by the United Steelworkers of America. The new directors will be designated in the Court order that sanctions the plan.

The plan is conditional on the agreement of the employees to new collective bargaining agreements, and the approval of all classes of Algoma’s creditors. Meetings aimed at securing approval are slated for early December.

Algom filed for filed for court protection from its creditors in April, swamped with a $76.8-million first-quarter loss, long-term debt and massive steel dumping into North America by foreign countries.