RG Steel Seeks Bankruptcy Protection, Plans to Sell Mills
RG Steel LLC, the fourth-biggest U.S. flat-rolled steelmaker, sought bankruptcy protection with a goal of selling the company in less than two months.
RG Steel, based in Sparrows Point, Maryland, listed assets and debts of more than $1 billion each in Chapter 11 documents filed today in U.S. Bankruptcy Court in Wilmington, Delaware. Seven affiliates also sought protection from creditors, including WP Steel Venture LLC.
Renco Group Inc. bought the three-plant steelmaker from Russia’s OAO Severstal (CHMF) last year 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 can produce 8.2 million tons of steel a year.
“We have already begun a sales process aimed at maximizing value for all stakeholders and preserving the jobs created when RG Steel acquired these facilities,” Chief Executive Officer John Goodwin said in a statement on RG Steel’s website.
The steelmaker has arranged a $50 million bankruptcy loan from a group of existing lenders to help fund operations while it seeks a buyer. Deadlines that must be met under the loan include a sale by July 27.
Last week, the company notified employees and the United Steelworkers union, which represents 88 percent of RG Steel’s 4,000 employees, that it would start firing workers on June 4.
“There will be a lot of employees let go as we wind down,” Bette Kovach, an RG Steel spokeswoman, said today in a telephone interview. The plants are still operating and will be idled “as our steelmaking orders are completed,” she said.
Joint ventures such as Mountain State Carbon LLC, RG Steel’s 50 percent-owned venture with Severstal, won’t be affected by the job cuts, Kovach said. Mountain State is the third-largest U.S. coke producer with a 1.2 million-ton capacity.
“The USW continues to meet internally and with RG management to discuss the company’s business plans,” Dave McCall, USW District 1’s director, said in an e-mailed statement. Union members’ skills will be “essential for a successful future at these facilities,” he said.
RG Steel doesn’t have a so-called stalking horse, or lead bidder, for the steel mills, according to court documents. Interest from potential bidders “has left no doubt” the assets are attractive as a going concern, Chief Financial Officer Richard Caruso said in court papers.
RG Steel 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 Caruso’s filing.
Steelmakers including U.S. Steel Corp. (X), the country’s biggest by volume, and Nucor Corp. (NUE), the largest by market value, have warned that shipments and profitability may decline this quarter as demand slumps.
The price of hot-rolled steel coil, a benchmark product used in autos and appliances, has dropped 12 percent since January to $645 a short ton, the lowest since November, according to data from Steel Business Briefing.
China, the biggest steel consumer, is forecast to expand 8.2 percent this year, the slowest growth since 1999, based on the median estimate of analysts surveyed by Bloomberg.
RG Steel and its affiliates are 75 percent-owned by Renco, with the remaining equity owned by Cerberus RG Investor LLC, according to court papers.
The company’s operations include three main steel-producing plants in Sparrows Point; Warren, Ohio; and Wheeling, West Virginia. The company also has facilities in Mingo Junction, Martins Ferry and Yorkville, Ohio.
The Sparrows Point mill in Baltimore County is one of the largest single-site steelmaking facilities in the U.S., with an annual capacity of 3.9 million tons, according to court papers.
The Warren plant can make 1.4 million tons of crude steel a year and specializes in high-strength, alloy and heavy-gauge galvanized steel, court papers show. The facility in Wheeling produces 2.9 million tons of hot and cold flat-rolled steel and operates primarily as a steel-finishing plant, the company said.
The steel-manufacturer has a senior credit facility with two tranches of $625 million and $25 million available and outstanding obligations of about $440 million, according to court documents. It also has a junior credit facility with three available tranches -- two of $62.5 million and another of $100 million. The junior facility has about $218.7 million outstanding.
The company owes Renco about $130.5 million under two issues of subordinated notes. Severstal holds a note with outstanding debt of $100.7 million related to last year’s deal.
RG Steel’s largest creditors without collateral backing their claims include Severstal U.S. Holdings II Inc., with a claim of $36.5 million; Mountain State, with a claim of $22.4 million; Balli Steel Plc, with a claim of $15.8 million; and Cleveland Cliffs Iron Co., with a claim of $10.9 million, according to court papers.
The lead case is In re WP Steel Venture LLC, 12-11661, U.S. Bankruptcy Court, District of Delaware (Wilmington).