Wednesday, 15 August 2012 12:09

photo by Roland Dorsey

Steel mill sold to liquidator and redeveloper

by Nicole Rodman

It appears that the end may have finally come for steelmaking at Sparrows Point.
    Court records filed last Friday indicate that the high bidder for the steel mill at Sparrows Point is St. Louis-based redevelopment corporation Environmental Liability Transfer.
    The mill property was sold during an auction held at the Manhattan law offices of Willkie, Farr & Gallagher last Tuesday, Aug. 7.
    Early reports declared Michigan-based liquidator Hilco Industrial as the sole high bidder, though Friday’s court filing indicated that this was not the case.
    In remarks to the Baltimore Sun last week, Tom Roberts, principal of Environmental Liability Transfer, confirmed that his company and Hilco Trading (operating under the name HRE Sparrows LLC.) will pursue a joint venture regarding the Sparrows Point mill property.
    When contacted by The Eagle regarding last week’s auction, Hilco chief marketing officer Gary Epstein declined to comment.
    The high bid for the Sparrows Point mill at auction was less than a tenth of the $810 million paid by Russian steelmaker Severstal for the property just four years ago, and less than half the estimated price paid by Renco, RG’s parent company, last year.
    Since the sale of the former Bethlehem Steel plant to International Steel Group in 2002, the sale price of the Sparrows Point property has plummeted from $1.5 billion to just $72 million.

No bids from steelmakers
    Despite the fact that three steelmaking companies registered to participate in the auction, none of these companies bid in last Tuesday’s auction.
    Brazillian steelmaker CSN, North Carolina-based Nucor and Optima Fund Management, a hedge fund associated with Ukranian mining company Metinvest, all  expressed interest in acquiring the mill but did not show up for the auction last week.
    The terms of the sale were scheduled to be  examined by U.S. Bankruptcy Court Judge Kevin Carey during a hearing on Aug. 15.

New owners’ plans unclear
    Once the sale is approved, the new owners of the mill will be Hilco Industrial and Environmental Liability Transfer.
    Founded in 1987, Hilco Trading Company (parent company to Hilco Industrial) has closed 3,000 deals since its inception, according to a 2007 article in Crain’s Chicago Business.
    Hilco’s industrial wing specializes in liquidating sites, scrapping materials and auctioning equipment to recoup its investment in the property.
    According to Baltimore Brew reporter Mark Reutter, there are a number of connections between RG Steel and new mill owner Hilco.
    Both RG and Hilco have ties to Cerberus Capital Management, a $20 billion private equity firm.
    In January, Cerberus lent RG $130 million to reopen the mill, which was shut down due to a lack of raw materials last Dec. 23.
    As a result of this cash infusion, Cerberus was given a  24.5 percent stake in RG Steel Sparrows Point.
    In documents on file with the Illinois Secretary of State, Hilco Trading Company lists Cerberus Investments LLC as an affiliate.
    According to a report in  Crain’s Chicago Business, in 2006 Cerberus and Wall Street firm Goldman Sachs gained a third of Hilco Trading Company.
    Under federal law, it is illegal for insiders with financial control or a stake in a bankrupt company to purchase any of its assets.
    Federal law defines an “insider” as an entity holding or controlling 20 percent or more of the debtor’s securities.
    In a statement to the Brew last week, Hilco chief marketing officer Gary Epstein denied any connection between Cerberus and Hilco.
    In addition to Hilco and RG’s connection through Cerberus, both companies are represented by attorneys at Willkie, Farr & Gallagher.
    Willkie, Farr & Gallagher attorney Matthew A. Feldman told the Brew earlier this week that his law firm “represents [Hilco] in matters wholly unrelated to the debtors [RG Steel].”
    He added, “To the best of my knowledge,” the firm has no other connection “with the debtors, their creditors or any other parties in interest or their representative lawyers and accountants.”
    Hilco’s partner in bidding for the Sparrows Point mill property is Environmental Liability Transfer, a subsidiary of Commercial Development Company, Inc.
    Established in 1985, Commercial Development Company is a “real estate development firm specializing in the development, acquisition and redevelopment of major commercial and industrial sites,” according to the company website.
    Environmental Liability Transfer, high bidder for the Sparrows Point mill, was created to allow companies to tranfer and eliminate environmental liabilities.
    Recently, the company aquired former coal mines in West Virginia and Illinois, both of which became evironmental liabilities to the owners due to acid mine drainage into the groundwater.
    Other recent aquisitions by Environmental Liability Transfer include a former industrial landfill in Marietta, Ohio, an asbestos-contaminated Viacom/Westinghouse facility in Atlanta, Ga., and a former Caterpillar manufacturing facility in York, Pa.
    As seen in a number of before-and-after photographs on its website, Environmental Liability Transfer specializes in demolition of and elimination of pollution on industrial sites.
    Once cleared, many of the sites, such as the G. Heileman Brewery in Belleville, Ill., are able to be redeveloped for other use.
    So far, no representatives of Hilco or Enviromental Liability Transfer have elaborated on specific plans for the Sparrows Point steel mill property.
    According to mill general manager Glenn Mikaloff, in an e-mail to plant managers last Tuesday,  “[the new owners] pledged not to destroy key steelmaking assets for 6 months while the unsecured creditors attempt to find an operator.”
    According to a report in The Baltimore Brew last Friday, the Sparrows Point mill has $203.3 million in inventory, including $55 million in finished steel slabs and bands and $45 million in raw materials.
    By selling these materials alone, the new owners could recoup the $72 million purchase price without selling off or destroying any essential steelmaking assets.

Local leaders remain optimistic
    For his part, United Steelworkers Local 9477 president Joe Rosel noted that, while the result of the auction “wasn’t what we had hoped for,” he remains hopeful that a new buyer can be found to reopen the plant.
    Speaking with The Eagle last Friday, Rosel explained that he does see the reopening of the plant as a viable, realistic option.
    Rosel pointed to the new owners’ six-month stay on destroying steelmaking equipment as proof that hope remains for the plant’s 2,000 laid-off workers.
    “If someone pays [the new owners] more than $72 million to operate [the property] as a steel plant, than that is the steal of the century for them,” Rosel said.
    He speculated that, with economic improvement, a steelmaker with enough capital could come along and acquire the mill for a record-low price.
    Ideally, Rosel noted, any new owners of the mill would have their own source of raw materials  such as iron ore, rather than being forced to rely on market prices as RG Steel was.
    Baltimore County Executive Kevin Kamenetz is also optimistic that a new buyer can be found to reopen the mill.
    “We remain hopeful that a buyer will emerge for these core assets and that Baltimore County’s tradition of steelmaking continues for years to come,” Kamenetz noted in a statement released last week.
     He added, “All of us in Baltimore County continue to stand and fight with our steelworkers.  This is far from over.”
     In remarks on the sale of the plant, Kamenetz also vowed to aid the steelworkers laid off from the plant.
    According to a press release issued by Kamenetz’ office last Thursday, the county will hire an employment services coordinator who will specifically work with training and career development for steelworkers.
    Through the new program, laid-off steelworkers will be able to build new skills and gain new certifications.
    The program will be funded by a grant from the U.S. Department of Labor, through the Maryland Department of Labor Licensing and Regulation.
    U.S. Representative C.A. Dutch Ruppersberger also signaled his hope for the future of steel at Sparrows Point.
    “The Sparrows Point plant and its steelworkers have produced the steel that has literally built our country for the last 120 years,” Ruppersberger said, adding, “It could and should continue for another 120 years.”
     Comparing the troubles faced by the U.S. steel industry to those faced by the auto industry, Ruppersberger noted that, like the auto industry, the “steel manufacturers need our help.”
 “They are falling behind competitors in China and Japan and require creative solutions,” he explained, concluding, “We must forge new partnerships between government and the private sector, fight unfair foreign export restraints on important raw materials, create incentives for manufacturers to grow and hire and invest in rebuilding our country’s infrastructure.”

Mill sold for well under value
    While RG’s assets at Sparrows Point and in Warren, Ohio, went to auction just last Tuesday, at an auction on July 31, RG’s facility at Mingo Junction in Ohio fetched $20 million, while the sale of the Martin’s Ferry, Ohio plant brought in $22 million.
    With the sale of RG’s other steel mills in Sparrows Point, Ohio and West Virginia, the total price received for all of RG’s steelmaking properties was $125 million, a fraction of the $1.2 billion paid by RG just last March.
    While the low price is bad news for RG Steel itself, it is also a blow to RG’s creditors, both secured and unsecured.
    Upon filing for Chapter 11 bankruptcy in May, RG Steel’s assets were estimated at $1.3 billion, with about $1 billion in unpaid bills owed to creditors.
    With just $125 million coming in from sales of their facilities, RG has not  made enough to satisfy even their secured creditors, to whom RG owes $434 million.
    Secured creditors, which hold leins on RG assets, include Wells Fargo Capital Finance and GE Capital.
    With even the secured creditors unlikely to receive all the money they are owed, RG’s unsecured creditors have little hope of ever being paid.
    RG owes millions in unpaid bills to Baltimore City, Baltimore County, United Steelworkers of America and thousands of others.

Environmental concerns
    Unsatisfied with the sale of the RG facility at Sparrows Point, last Wednesday, Baltimore County filed papers in the Wilmington, Del., U.S. Bankruptcy Court objecting to the sale of RG unless certain conditions are met.
    Among these conditions, Baltimore County requests that RG pay the $4.6 million owed in taxes and sewer charges.
    The county also demands that the new owner comply with and fulfill the terms of a 1997 consent decree holding any owner of the mill property responsible for cleaning up environmental contamination at the site.
    Baltimore County is not the only one raising objections to the sale of RG Steel based on environmental concerns.
    In a letter to RG Steel attorneys in June, Towson attorney Bart Fisher took RG to task for failing to disclose environmental pollution concerns in their bankruptcy filings.
    Asked in bankruptcy papers filed in May if its property “poses or is alleged to pose a threat of imminent and identifiable harm to public health or safety”, RG answered “no” a claim which Fisher calls false.
    Fisher represents Sparrows Point Action, a local group working to decreased pollution in Sparrows Point.
    On  Aug. 9, Sparrows Point Action filed a class action lawsuit against RG Steel on behalf of area residents.
    “Government enforcement actions and consent  decrees have not been able to stop the pollution of the Sparrows Point area,” attorney Alan Silverberg noted in a press release announcing the lawsuit, adding, “The residents of the Sparrows Point area have thus decided to pursue this private nuisance class action lawsuit against the companies at Sparrows Point that have continued to foul the air, water, and soil.”
    He continued, “We hope that this litigation will encourage the development of a healthier environment for the residents of Sparrows Point.”
    For his part, Maryland Attorney General Doug Gansler also objected to the sale on behalf of the Maryland Department of the Environment (MDE).
    ‘To comply with the Consent Decree to MDE’s satisfaction, the Sale Order will need to provide for fulfillment of the terms of the Consent Decree ...” the objection reads, adding, “RG Steel’s proposed Sale Order is currently believed to be silent regarding fulfillment of these Consent Decree obligations, which is a clear violation of the consent decree.”
    Asked by The Eagle to expand on the attorney general’s objection, Gansler’s communications director David Paulson explained, “The objection was intended to insure that any sale of the property complies with the existing consent decree regarding the environmental issues that remain with the property as a result of actions taken by the Maryland Deptartment of the Environment in conjunction with the Office of the Attorney General.”
    Like Gansler, last week the U.S. Department of Justice filed an objection to the sale of RG’s plants in Sparrows Point and Warren, Ohio. The motion was filed on behalf of the Environmental Protection Agency.
    In its court filing, the Justice Department noted that the government “reserves the right to object to the sale of contaminated property to any purchaser unless it is financially and otherwise capable of performing cleanup and taking other steps required under environmental laws to protect the public from hazardous conditions at the facilities.”

Court to give final approval
    The sale of RG Steel assets in Sparrows Point  and Warren, Ohio, is not yet final, but requires approval from Judge Kevin Carey of the Wilmington, Del. U.S. Bankruptcy Court.
    During a hearing on Aug. 15, Judge Carey was set to decide whether or not to approve the sale of RG’s Warren and Sparrows Point plants. Information on this decision was not available as of press time.