The journey out of creditor protection for Stelco Inc. began with a phone call from American industrialist Alan Kestenbaum to United Steelworkers union president Leo Gerard.
It was October, 2015, and the merger of Mr. Kestenbaum's silicon-alloy company Globe Specialty Metals Inc. and European competitor Grupo FerroAtlantica was about to close.
He had created an investment vehicle called Bedrock Industries LP and was casting about for potential targets.
"One of the first things I did was call Leo Gerard to let him know about the formation of the fund and ask him if he was aware of any opportunities for us to pursue," Mr. Kestenbaum recalls.
Some 20 months after Mr. Gerard responded that Stelco was worth examining, Bedrock will become the steel company's third owner in a decade. Stakeholders from the Ontario government to unionized workers to thousands of retirees whose health-care benefits have been reduced hope Bedrock does not become the third strike.
The timing of Mr. Kestenbaum's intervention could not have been better.
Stelco, then called U.S. Steel Canada Inc., was 13 months into protection under the Companies' Creditors Arrangement Act, and had just gone through a sales process that failed when all bidders walked away and its parent, United States Steel Corp., was preparing to abandon it.
"I think one of the reasons [Mr. Gerard] suggested this was that he understands we have a lot of patience," said Mr. Kestenbaum, chairman and a majority shareholder of Bedrock.
At that point, patience was an even more important commodity than the iron ore and coal necessary for the steel made at the company's Lake Erie works in Nanticoke, Ont.
The relationship between U.S. Steel and its unions had been horrible for most of the seven-year ownership of the Canadian unit by the Pittsburgh-based company – and the trip through creditor protection had done nothing to improve it. Not only were they battling over the restructuring itself, the steel maker infuriated the unions and other stakeholders by stripping its highest-value automotive contracts out of Lake Erie and shipping production to its U.S. mills.
That divorce between U.S. Steel and U.S. Steel Canada, however, is regarded by some of the players in the restructuring as the turning point.
"When U.S. Steel basically said 'Okay, we don't want it any more,' that changed everything," said one participant in the restructuring.
While that event was critical, there were still many months of complex negotiation and litigation involving the extraction of U.S. Steel, agreements with the Ontario government and union locals in Hamilton, and Nanticoke, as well as a large group of salaried retirees and employees.
"To borrow an expression from the movie Spinal Tap, I'd say on a scale of one to 10, this was an 11" in terms of complexity, said James Gage, one of a squadron of McCarthy Tetrault LLP lawyers working for U.S. Steel Canada.
It wasn't until July, 2016, that Bedrock was identified as the preferred bidder in the second sales process and it could begin negotiating agreements with the various stakeholders.
By then, turmoil was the order of the day at Stelco.
The CCAA protection it was granted in 2014 was its second trip through the process. When U.S. Steel bought the company seven years earlier, it had recently emerged from its first journey through bankruptcy protection.
The years of U.S. Steel ownership were marked by strife – lockouts of workers in both Hamilton and the Lake Erie Works at various times and a court battle with the federal government after U.S. Steel broke promises on employment and steel production made when the purchase was approved under foreign-investment rules.
When the company was granted its second CCAA protection, it cited a pension-solvency deficiency of about $840-million. Coming to grips with that and reducing health care and other benefit costs were at the top of the agenda for making the company sustainable.
The restructuring plan that has been approved by the courts and all stakeholders addresses those issues with a schedule of payments by the company and additional contributions from the sale of excess lands. Stelco will lease the land on which its operations sit.
Bedrock will contribute $30-million upfront to the pension plans, $10-million in the first year of ownership, another $10-million annually from 2018 through 2021 and $15-million a year from 2022 to 2037. The solvency deficiency will no longer be on Stelco's books.
What's critical is "a change in the legacy liabilities from a significant defined benefit structure to a more defined contribution structure so you know in advance what your cost structure is," Mr. Kestenbaum said.
He believes, however, that a more important key to a prosperous future for Stelco is improving the culture and getting management employees and unionized staff working together.
"The very first thing we need to do is go in and infuse people with a sense of excitement that the future is now bright," he said. "Once you get your people all rowing in the same direction and excited to go to work, productivity increases."
He said he noticed during his due diligence examination of Stelco that there's a wall between management and the unionized workers so there's work to be done to convince all employees that they're on the same team.
To begin the process of changing the culture, he sat down at the negotiating table with locals 1005 and 8782 of the United Steelworkers union to outline what the company wanted and why in the new five-year labour agreement that members of both locals subsequently approved.
He said he hopes the word "turmoil" to describe Stelco will disappear in a year to be replaced by new start or fresh beginning.
Mr. Gerard, for one, is a believer.
"If you look at what's happened to Stelco, the last two buyers were there just to suck the juice out of it," the union leader said.
Mr. Kestenbaum "knows you don't get success by taking out of the workers' wallets," Mr. Gerard said. "He's not there to flip it, he's there to make this a viable concern."
Ontario Finance Minister Charles Sousa is also confident that Stelco has turned a corner. The province was a key stakeholder because of the environmental liabilities on the lands and a $150-million pension-financing loan made to Stelco when it emerged from CCAA in 2016 that was not repaid by U.S. Steel.
"We wanted to ensure we had a going concern," Mr. Sousa said in describing the Ontario government's goals in the restructuring.
"Now we have a debt-free, liability-free company with an opportunity to do good things."