The Pension Benefit Guaranty Corp. sued the Renco Group Inc. over $97.2 million in unfunded pension liabilities at its bankrupt RG Steel LLC unit, once the fourth-biggest U.S. flat-rolled steelmaker.
The agency claims Renco deceived it in January 2012 when it was ready to terminate the pension plans. Renco executed a financing transaction that month with an affiliate of Cerberus Capital Management LP in an effort to avoid the financial obligations of the former steel-maker’s pension shortfall, according to a complaint filed today in federal court in Manhattan.
This is the second time this month that Renco or its billionaire founder Ira L. Rennert have come under attack over the pension obligations. This month, RG Steel’s creditors asked for court permission to sue Rennert, claiming he delayed the bankruptcy to reduce Renco’s ownership in RG Steel to skirt the unfunded pension liabilities.
“The facts will show that these claims are baseless,” Andrew Shea, a spokesman for Renco, said in a phone interview.
Renco entered into a deal with a Cerberus affiliate on Jan. 17, 2012, that reduced its ownership in RG Steel to 75.5 percent, decreasing its equity stake below the 80 percent threshold that would have left it on the hook for the pension obligations, according to court papers.
One business day before the transaction, “Renco requested that PBGC not initiate proceedings to terminate the plans and, to induce PBGC to refrain, falsely represented that no transaction was imminent,” the agency said in court filings. “The consummation of the transaction was directly contrary to Renco’s express representations,” which the PBGC relied on to forgo the termination.
During those discussions, Renco had indicated that it was willing to sign a standstill agreement with the PBGC, under which it would remain liable for the pensions even if the stake was reduced below 80 percent, according to the complaint. Renco never signed the agreement.
The steps taken to remove the pension plans from Renco, its misrepresentations just before the transaction, and RG Steel’s insolvency “confirm that the principal purpose of the transaction was to evade pension related liabilities,” the PBGC said in the complaint.
The agency is asking the court to rule that Renco is liable for the total amount of RG Steel’s unfunded pensions with interest and damages for fraud, fraudulent concealment and negligent misrepresentations.
New York-based Renco Group bought the three-plant steelmaker from Russia’s OAO Severstal in 2011 for about $1.2 billion, less than three years after Severstal acquired it for $2.2 billion. Renco created RG Steel to buy the mills, which could produce 8.2 million tons of steel a year.
RG Steel said it was forced to seek bankruptcy protection because of “substantial liquidity problems” it began to face during mid-2011, “driven by a rapid decline in steel prices, while raw material prices remained at peak levels,” according to court filings. The company, based in Sparrows Point, Maryland, listed assets and debt of more than $1 billion each in Chapter 11 documents filed May 31.
The case is Pension Benefit Guaranty Corp. v. The Renco Group Inc., 13-cv-621, U.S. District Court, Southern District of New York (Manhattan).