Sanctioning Secret Intrigue and Theft:
A Matter of Monopoly Power and
Control Over the Process

The Ontario Superior Court (Commercial List) is hearing a motion January 17 to sanction the secret intrigue of a small gang of finance capitalists who have come up with a restructuring plan that results in the takeover of Stelco by three monopolies -- Brookfield/Tricap, Sunrise Partners LP and Appaloosa Management LP of New Jersey. Steelworkers and the people of Hamilton and other steel communities want the Companies' Creditors Arrangement Act (CCAA) fraud to be over and Stelco to exit CCAA protection but cannot allow the sanction hearing to pass unopposed. The people cannot stand back and allow this travesty of monopoly right to proceed without comment, opposition and widespread denunciation, and to put the monopolies on notice that they are not going to be able to operate in the dark with impunity and without active opposition. Every time they try to take any action from their narrow perspective that harms the interests of steelworkers, the productive entity, steel sector, steel communities and the Canadian social economy, they will be exposed and directly opposed by active and retired steelworkers of USW Local 1005 and people organized across the country.[1]

The Stelco CCAA bankruptcy fraud has brought commercial law into complete contempt. Those in power at Stelco at any given time during this travesty of justice have manipulated CCAA to suit their private interests. They have used court rulings to plunder the added-value produced by steelworkers and to justify and sanction their own narrow interests, and the January 17 hearing is a continuation of the same process.

The Scam

Three monopolies representing the most parasitic section of finance capital have engineered a takeover of Stelco and are hoping for an even bigger score when the new shares are publicly traded. Brookfield/Tricap has already managed a payout of $11 million in a break-fee scam and is guaranteed huge sums in loan fees and interest. The three monopolies together with agents within Stelco management have concocted a scheme that liquidates the old shares and invents new ones that the new owners control at a starting price of $5.50 per share. Their expectation of course is that the market price of the stock will soar as soon as it starts to trade publicly, following the parasitic footsteps of post-CCAA share prices at Algoma Steel and Air Canada, where the initial holders of the new stock made a fortune. Algoma new stock prices have risen over 600 per cent from their post-CCAA price. None of that concocted paper wealth flows back to the productive entity, as it forms part of the parasitic and destructive neo-liberal economy of finance capital fleecing other sectors and people. It represents the fraud of consumption without production that is a major aspect of the neo-liberal economy. The productive entity, in this case Stelco, forms only a backdrop to the competitive intrigues and secret agendas and could be liquidated in a heartbeat, if the finance capitalists sense that such a destructive move would serve their narrow interests and the people are not vigilant, conscious of their essential self-serving aims and organized to oppose them.

Steelworkers who have been dragged into the Stelco CCAA fraud and other concerned observers of the process are not in the least fooled by the nonsense presented to the sanction hearing by Brookfield/Tricap in its factum. Everyone knows that those three monopolies, the debtor-in-posessesion bankruptcy lenders, restructuring professionals and others involved are only interested in making a big score from Stelco's assets and squeezing as much added-value out of the steelworkers as they can in the shortest possible time. Even after the new owners, creditors, restructuring agents and applicants fought, cajoled and played brinkmanship with each other before finally coming to a creditors' agreement on restructuring, they still cannot agree on the division of the spoils and who owns what.

The Play

The 46th Monitor's Report speaks darkly that the various finance capitalists are still squabbling over the amount going to each party and how Stelco's assets are going to be divided up and secured.

The Monitor matter-of-factly reported: "8. The Monitor has had discussions with the proposed ABL lenders, Tricap, the Province and Stelco regarding the status of the ABL Loan and Bridge Loan. The monitor has been advised that the parties are continuing to work at resolving issues that are outstanding as at the date of this Forty-Sixth Report. However, all of the parties remain optimistic that acceptable solutions to the outstanding issues will be found and implemented."

This is the first anyone has heard that there are some unresolved issues concerning the ABL Loan and the Bridge Loan. The ABL lenders had agreed to put up $600 million which would have first claim on assets, etc., while the Tricap Revolving Line of Credit (Bridge Loan) would have the second claim. Now there seems to be a problem.

The three new equity owners and the various creditors want their private ownership rights to be secured with specific Stelco assets in preparation for another bout within CCAA. It would seem that their current aim is to secure their basic aim of getting rid of the Hilton Works pensioners' legacy claims.

A Stelco press release reads, "The Monitor expresses the view that the principal issues to be resolved include the corporate structure of Stelco, which could involve the transfer of assets of some of Stelco's operations or divisions to new affiliates, and satisfying the providers of the above-noted facilities as to the priority of the new financing. The Report notes that, if the potential resolution of these issues involves the reorganization of Stelco's corporate structure, " the exit from CCAA will be delayed.

Finance capital has not even received official court sanction of this CCAA fraud and they are already squabbling about who gets what in the next one! The people do not tolerate this horse-trading and speculating over the precious production facilities on which so many steelworkers and others depend.

New Affiliates?

The steelworkers are keenly aware that the new monopoly owners are only interested in using Stelco's assets for their private narrow schemes, which may soon involve destroying Hilton Works. The disputes are so intense, the Monitor says that Stelco may be split up and assigned to different "affiliates."

The Monitor states: "9. In the Monitor's view, the principal issues to be resolved include: (a) the corporate structure for Stelco, which could involve the transfer of assets of some of the operations or divisions of the Applicants to new affiliates; and (b) satisfying the ABL lenders and Tricap as to the priority of the new financing. These issues need to be resolved primarily among the proposed ABL lenders, Tricap and Stelco and will also involve the Province insofar as they affect pension and related liabilities."

No explanation is given to what the Monitor means by "the transfer of assets of some of the operations or divisions of the Applicants to new affiliates." After everything else has been piecemealed off during the CCAA process, there is only Stelco Hamilton (Hilton Works) and Stelco LEW (Lake Erie Works) left to be potentially transferred. In other words, we have come full circle to the fundamental aim of depriving the workers of their legacy claims. It appears that now moves are afoot to hive off the pension liabilities. It appears that there is jockeying amongst the lenders to ensure that if they crater Stelco Hamilton, the LEW plant can be hived off and left "secure."

Even the suggestion of cratering Hilton Works must be opposed with unity and determination by a people committed to defending the productive assets of the community and their social economy. The wreckers will not have free rein. The president of USW Local 1005 has repeatedly held government responsible for its duty to defend the public good and save Hilton Works from the anti-social wreckers. The tense situation reveals in stark colour the underlying contradiction of Canada's economy between the social productive forces and their outmoded ownership and control by private monopoly gangs. That contradiction can only be resolved with a nation-building project led by the working class that vests sovereignty in the people and social ownership and control over the social means of production and distribution.

Brookfield/Tricap Factum and Its Fiction of an "Insolvent Stelco"

The central thesis of the Brookfield/Tricap factum to move the Ontario Superior Court to sanction its takeover and plan is that "Stelco is an insolvent CCAA debtor." The factum repeats that assertion time after time never attempting to explain why most everyone familiar with the case holds the view that Stelco was never insolvent in the first place and that CCAA has been used as a cover to liquidate the owners of equity, attempt to force steelworkers to give concessions, generate healthy profits for the parasitic restructuring business and bankruptcy lenders, and have the Ontario and federal governments reward the plotters to the tune of $180 million.

The factum reads without elaboration:

"5. (a) Stelco is insolvent and is properly under the protection of the CCAA....
"40. Stelco is an insolvent CCAA debtor....
"41. To avail itself of the protection of the CCAA, a company must be insolvent....
"46. Stelco is an insolvent CCAA debtor."

Contrary to the incessant assertions of Brookfield/Tricap, the CCAA court never ruled that Stelco was insolvent; it only speculated on a possible future insolvency on the basis of a perceived "looming liquidity crisis." The Ontario Superior Court concocted a new benchmark for entry into CCAA. Prior to CCAA January 29, 2004 Stelco had not missed one interest payment on its outstanding debt. It is still unclear who was behind the CCAA gambit in the first place. The creditors could not openly demand bankruptcy at the time because they had been fully paid, and the shareholders would not have asked for bankruptcy as they stood to lose their investments in Stelco's equity. The applicants and court's speculation of a looming liquidity crisis, not to speak of insolvency, turned out to be totally false, as Stelco has been stupendously profitable under CCAA even breaking quarterly profit records. So much money was generated, Stelco was able to hand over hundreds of millions of dollars in added-value to restructuring parasites, bankruptcy lenders, and over $20 million in break-fees to Deutsche Bank and Brookfield/Tricap and yet still declare record equity profits.

It is particularly ridiculous to read Brookfield/Tricap denouncing the "speculation" of the aggrieved current shareholders on the actual equity value of Stelco, when "speculation" runs in the blood of finance capitalists and "speculation" on future steel prices is an integral part of any valuation. Speculation on future low steel prices formed part of the original CCAA order. All attempts to arrive at an equity value for Stelco other than what exists in the adopted restructuring plan are denounced by the factum as, "28. ...a wholly speculative approach without any basis in fact."

Was the original CCAA order based in fact or on speculation? Was it not based in part on projected low steel prices provided by the applicants (those who controlled Stelco)? Those steel price projections proved completely wrong yet the court and applicants never revisited the CCAA order to give it some coherence by demanding Stelco exit immediately upon agreement with lenders to extend existing loans and an agreement with the provincial government over the pension problem.

Of course speculation on future steel prices to support a secret agenda is an honourable capitalist tactic such as the applicants and three monopolies have done to seize Stelco. The important point is to be in power and in control of the process and be able to call your speculation or projection as the correct and honourable one. A corrupt practice if ever there was one, the emphasis on steel prices begs the question: if steel prices are so crucial and important to the viability of Stelco, the steel sector and indeed the entire social economy, why can Canadians not set proper prices using the most advanced science, prices which would allow the productive entity and sector to survive, grow and contribute to the Canadian sovereign economy and well-being of the people? Is it not that private interests interfere with such a nation-building, pro-social project, and not that it is too difficult and beyond our capacity?

The factum even makes light of projections and somewhat throws them in people's faces by declaring that the $5.50 per share valuation of new stock is a speculation based on the power of private control over the company and the process by the three monopolies and the applicants and not much else.

The factum reads:

43. Speculation regarding the value of the New Common Shares to be distributed to Affected Creditors might be of relevance if there were no purchase price to be paid with new money after intense negotiations by arm's-length, sophisticated parties. However, speculation is unnecessary and inappropriate in this case. As was noted by this Honourable Court in a case involving the determination of the fair value of certain shares under what was then section 184 (now section 190) of the CBCA:

...in his introduction to the subject [of price forecasting] Lawrence stated:

8.4.1 General

The prediction of future nickel prices, or indeed of any commodity, is a most complex and inexact subject. The Economist [London, August 10, 1991, p. 12] quotes a rhyme penned by Sir Alex Cairncross (former chief economic advisor to the British Government):

A trend is a trend is a trend,
But the question is will it bend
Will it alter its course,
Through some unforseen course,
And come to a premature end?

No doubt with enough research I would be able to find as apt a rhyme for the quest for value.

The people should force the government to introduce some serious science into the issue of Canadian sovereign prices for basic commodities produced and consumed in our social economy, and reject this outdated nonsense of the global market and speculation generating prices. The above light-hearted admission over prices and the self-centred setting of $5.50 as the price of the new Stelco share tell the people that monopoly right sets prices. Speculation and the market forces are a convenient cover that hides the very visible guiding hand of the most powerful global monopolies dictating everything to do with the social economy.

The only coherent stand throughout has been that of USW Local 1005 and the resolve of its active and retired members to defend the rights of all in this sordid CCAA affair and to guarantee the future of Stelco as a viable productive entity. Local 1005's CCAA plan is still the only viable alternative and should be constantly referred to, as the people watch with eagle eye over every move of the new monopoly owners.

The Stelco CCAA fraud reveals that only the working class, as an organized social force has the interests of the nation and social economy at heart. Standing up for Stelco means taking it back from the wrecking schemes of the monopolies and putting a viable Stelco at the centre of nation-building and the social economy. Steelworkers are learning that in order to put their dreams of nation-building into practice they must oppose the nefarious schemes of the monopolies, become worker politicians and fight for political power to vest sovereignty in the hands of the people so that they will have a say and control over the economic, political and social affairs of the country.

Note

1. For analysis of the restructuring plan and the alternative proposal from USW Local 1005 see TML Daily December 8, 2005 No. 202; December 15, 2005 No. 206; and December 21, 2005 No. 210 at www.cpcml.ca.