Wednesday, 06 February 2013 12:27

PBGC alleges company tried to escape obligations

by Nicole Rodman

The U.S. Pension  Benefit Guaranty Corp. (PBGC) has filed a lawsuit against the Renco Group — parent company of former Sparrows Point steel mill owner RG Steel.
    Created by the federal Employee Retirement Income Security Act of 1974, PBGC works with private-sector companies to provide pension benefits to workers across the U.S.
    PBGC took over the pension plan of then-mill owner Bethlehem Steel after the company filed for bankruptcy in 2002.
    PBGC is suing Renco for $97 million for what it alleges was a purposeful action to avoid pension liabilities.
    According to PBGC, the $97 million figure factors in termination premiums and unpaid benefit liabilities and minimum funding contributions for RG Steel’s 1,354 retirees and future pension beneficiaries.
    Founded by New York-based billionaire Ira Rennert, the Renco Group formed RG Steel in 2011 in order to purchase the Sparrows Point steel mill, along with steel mills in other states.
    According to the lawsuit, filed on Jan. 28 in the U.S. District Court in New York, Renco sold 24.5 percent of its stake in RG Steel to private equity firm Cerberus Capital Management last January in order to receive funding to remain open.
    The financing did little to help; RG Steel ultimately filed for bankruptcy last May.
    The Sparrows Point steel mill closed for good last June.
    Under the terms of the Employee Retirement Income Security Act,  a company is responsible for pension liabilities if it owns 80 percent or more of the employing company.
    According to the PBGC, Renco deliberately reduced its stake in RG Steel in an effort to avoid responsibility for paying pensions.
    Renco denies the allegation. In a statement to Reuters news agency, Renco spokesman Andrew Shea said, “The facts will show that these claims are baseless.”
    While PBGC filed the lawsuit, RG Steel’s Official Committee of Unsecured Creditors have also levied accusations that Renco sought to avoid pension liabilities.
    According to the unsecured creditors, not only did Renco’s sale of the 24.5 percent stake to Cerberus not help RG Steel, it ultimately led to additional debt.
    In court documents filed last week, the Official Committee of Unsecured Creditors asked permission to sue Renco for $238 million for its delay in filing for bankruptcy.
    As the group explained in court documents, “Rather than take the obvious course and file for bankruptcy protection, as advised by counsel, which would have been in the best interests of the Debtors and allowed for an orderly liquidation and sale of the Debtors’ assets, Rennert chose to layer on more debt with no real hopes of solving the Debtors’ financial problems but only of potentially avoiding his own underfunded pension liability.”
    Responding to these accusations, Shea told the Bloomberg news agency that “these claims are frivolous and without merit.”
    The Official Committee of Unsecured Creditors has not yet received permission to file its proposed suit.