Bethlehem Steel in Chapter 11
No. 3 U.S. steelmaker blames imports, slowing economy, labor and retiree costs.
NEW YORK (CNNmoney) - Bethlehem Steel Corp. filed for Chapter 11 bankruptcy court protection from creditors Monday, saying that cost-cutting efforts could not make up for the impact of cheap steel imports coupled with a slowing U.S. economy.|
The company said its annual revenue has fallen by $1.3 billion since 1998 due to the impact of imports and reduced demand for steel products, and that the Sept. 11 terrorist attack has worsened its short-term outlook due to the expected drop in demand for autos, appliances and new homes.
"Chapter 11 does not solve our problems," said a statement from Robert Miller, the new CEO and chairman of the company who was hired Sept. 24 for his turnaround expertise. "It provides us a process and framework within which we can address and explore the significant issues facing the company."
The company said that under the filing it will seek a way of reducing the $3 billion cost of its retiree health-care obligations, as well as working with the United Steelworkers union to reduce labor and health-care costs for active employees. It said discussions with the USW already have begun.
"There is a very cooperative understanding between myself and the leadership of the steelworkers union," said Miller in a conference call, at which he took no questions from analysts or reporters.
The union issued a statement criticizing the federal government for the state of the U.S. steel industry, rather than attacking Bethlehem's call for lower wages and benefits.
"How many companies have to go under before Washington gets the message?" said a statement Steelworkers union president Leo Gerard. "How many American workers and communities will have to be devastated by the predatory practices of foreign governments before Washington realizes that the country's economic and national security is being totally undermined for the sake of protecting trade policies that have patently failed."
Shares of Bethlehem Steel (BS: Research, Estimates) hadn't opened for trading as of 1:00 p.m. ET Monday, and the New York Stock Exchange said it was not clear if or when it would begin trading. The company's shares closed up 2 cents to $1.20 Friday.
Government help sought
Miller had a leading role as chief negotiator for Chrysler Corp. in the early 1980s in dealing with bank lenders and the government in arranging a bailout of the No. 3 U.S. automaker, and his statement suggested he would again look for government assistance to help save his current company.
"Government assistance and support will be required if we are to reestablish a vibrant and healthy domestic steel industry," he said. He said in his conference call that assistance being sought may include help paying retiree health care costs or a change in corporate tax structure. He said that if the USW and the company agree it make sacrifices, it would give them the "moral suasion" the industry needs to get help from the government.
Gerald's statement was more specific, calling for $1 billion in federal assistance to help cover retiree healthcare costs, and raising the federal loan guarantees available to the steel industry to $5 billion. It also called for immediate action on the steel import limits.
In June, President Bush announced he would ask the U.S. International Trade Commission to investigate whether to impose restrictions on steel imports, the first step toward protectionist measures that had been shunned by the Clinton administration. But it has not taken the subsequent step of imposing restrictions.
The stocks of Bethlehem and other steelmakers rose on that June announcement, but Bethlehem shares lost 71 percent of their value between that announcement and the close of trading Friday.
Merger a possibility
Bethlehem's statement also suggested it would look at a possible sale or merger with another steelmaker, as it said it would "explore participation in the necessary consolidation of the highly fragmented domestic steel industry." Miller said in his conference call Friday that he is convinced both mergers and closings are needed for the domestic steel industry to again thrive.
In Chapter 11, a company can shed some of its debts owed to creditors and sometimes can change terms of labor contracts while it continues operations. But there are risks for steelmakers filing for bankruptcy protection if customers worried about the reliability of supplies decide to shift their purchases to other companies. They could also face work stoppages by unions if they try to change the terms of labor contracts.
The company said it has arranged $450 million of financing from GE Capital, subject to bankruptcy court approval. Miller said the company's previous plan to arrange for $750 million in financing was no longer realistic in the current economic environment. But he said the $450 million of new financing is sufficient because none of it has to be used to refinance old debt, as much of the $750 million would have been.
"The $450 million is more than the $750 million by this math," he said. "This should provide sufficient liquidity. Production of steel and shipments will continue without interruption."
Larger-than-expected losses reported
Bethlehem Monday also reported a larger-than-expected third-quarter loss. The company lost $134 million, or $1.11 a share, excluding special items. That's up from the loss of 34 cents a share, excluding special items, in the third quarter a year earlier. Analysts surveyed by earnings tracker First Call forecast a loss of $1.01 a share in just completed period.
Third quarter revenue fell to $825.4 million, down 16 percent from the $988.8 million a year earlier, and below the First Call forecast of $846 million.
The company had reported a loss of $263 million, or $2.18 a share, in the first six months of the year, and analysts are expecting its loss per share for the year to grow to $3.97 from $1.27 in 2000. The company also is expected to lose money in 2002 and 2003.
The steelmaker has been selling some assets and laying off hourly staff this fall. It announced Oct. 1 that it had obtained essentially all of the necessary commitments for a new $750 million line of credit.
Bethlehem decided to seek bankruptcy protection despite slashing costs by about $300 million since mid-1998, according to its statement.
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Competitor LTV Corp., the nation's No. 2 steelmaker, filed for bankruptcy protection last Dec. 29, citing the same problems with labor costs and cheap imports.