Weirton Steel Corporation (JPMorgan Chase)
August 24, 2004
Compass Advisers, LLP ("Compass") provided financial advisory services to JPMorgan Chase Trust, NA ("JPMorgan Chase"), the Indenture Trustee for Weirton Steel Corporation's ("Weirton Steel") 10% Senior Secured Notes Due 2008 and the Senior Pollution Control Revenue Fund Bonds Series 2002 (collectively, the "Indentures"), during the Chapter 11 reorganization of this tin mill and sheet metal fabricator. The company had completed a comprehensive restructuring in 2002, and additional cost-saving efforts implemented in 2003 improved efficiency, reduced employment costs and addressed expenses and maturities of long-term debt, but financial challenges such as declining market conditions and overwhelming post-retirement obligations ("legacy costs," including pension funding, retiree healthcare benefits and life insurance) were affecting Weirton Steel's profitability.
When Weirton Steel filed for bankruptcy on May 19, 2003, it was the fifth largest U.S. integrated steel company and the nation's second largest producer of tin mill products. The company had secured a $225 million debtor-in-possession ("DIP") facility to furnish sufficient working capital for its operations, and it was hoped that, in the context of a bankruptcy filing, this financing would enable Weirton Steel to improve its liquidity while continuing normal operations as an independent company.
Weirton Steel's goal was to use the reorganization process to become as competitive as possible in the rapidly consolidating steel industry. The new industry model – fewer and larger steel companies with consolidated production and significantly reduced costs – had changed the domestic industry. Consolidated companies had gained significant competitive advantages by substantially reducing their operating expenses, primarily by buying assets in bankruptcy sales resulting in minimal or no legacy costs. One of the leaders in this consolidation trend, Cleveland-based International Steel Group ("ISG") owned debt securities issued by Weirton Steel, and placed a bid to exchange this debt at face value in exchange for equity in the business. Compass was retained by the Indenture Trustee, JPMorgan Chase, to provide strategic advice in this transaction.
On an expedited basis, Compass evaluated numerous proposals to acquire Weirton Steel's assets and/or business operations, including terms proposed in plans of reorganization and other restructuring transactions. Our professionals reviewed and assessed appraisals of Weirton Steel's going concern and enterprise value, financial conditions and projections relating to its business operations and assets, and the value of proposed distributions to noteholders under the Indentures. With this information, Compass advised JPMorgan Chase and the noteholders regarding how to best achieve a maximum recovery in the debt-for-equity exchange, and how to best manage the complex intercreditor issues inherent to the bankruptcy proceedings. A competitive bid to purchase Weirton Steel was placed by another interested party but, ultimately, ISG negotiated with the steel unions and was able to achieve mutually acceptable terms for its acquisition of Weirton Steel. The bankruptcy court approved the ISG transaction on May 18, 2004, and a plan of reorganization was approved at a confirmation hearing held on August 24, 2004.