With his first paycheque from Algoma Steel Corp. Ltd., Tom Bonell of Sault Ste. Marie bought a '62 Chevy Biscayne for $150.

Nineteen years old, just out of high school, Bonell drove the car up and down the Queen Street strip, and along with the other fresh-scrubbed faces of the Sault, he recalls, “put American Graffiti to shame.” It was 1970, the steel plant was expanding,

and wages were high. A year earlier, the employment situation was so tight, Algoma had sent a ream to Britain to scout out skilled workers. By 1981, Algoma Steel’s employment levels reached a peak of 12,000 people, or roughly one in every six Saultites 6w;-ites), children included. The company had become like a little town: besides its pool of labourers, tradespeople and engineers, it employed everyone from printers to X-ray operators.

Twenty years later, the scene is much more sombre. Along Queen Street, many storefronts sit empty. Bonell, now a union local president, is fighting to save jobs—and the Saulr’s lifeblood employer. The Algoma steel plant, Canadas rhirdlargest integrated steel producer, is in severe trouble. T here’s not much nighttime cruising on the strip anymore. Algoma Steel—now Inc. following a restructuring in 1992—is on the verge of

bankruptcy and for the second time in a decade is under court-ordered protection from creditors. Still the Sault’s largest employer, Algoma today employs about 4,000 people. While analysts argue over what went wrong, a battery of lawyers, bankers and investment advisers is once again toiling to put together a deal that will keep the company—and Sault Ste. Marie—in business. It will mean drawing difficult concessions from a diverse slate of stakeholders: bondholders, the provincial government, employees. Bonell, who was at the negotiating table 10 years as a union VP, is back again—this time as president of Local 2251 of the United Steelworkers of America, representing 3,300 Algoma workers. “This,” he says, “is the start of the dance.”

The Algoma Steel plant stretches over 810 hectares of land along St. Marys River, the channel of water that joins lakes Superior and Huron. The plant is like a boys ultimate sandbox fantasy, only giant-sized. There are mountains of smooth iron pellets and cakey coal lumps, trucks three lanes wide, feverish coke ovens, train tracks, conveyor belts, lifts, overhead hooks and cranes, labyrinths of catwalks and cement corridors. Everything is oversized. Bucket-shaped vessels, called ladles, are as big as bungalows. Wringerwasher-style rollers the size of water heaters are used to flatten soft steel into thin, hard sheets. There is the noise. The heat. And in the case of 100-yearold Algoma, the debt.

In April, following disastrous results for 2000 and the first quarter of 2001, Algoma petitioned the Ontario Superior Court of Justice to protect it under the Companies’ Creditors Arrangement Act, better known as C-C-double-A. Last year, the company lost $60 million. In the first three months of 2001, it hemorrhaged $167 million. Officials project a total loss this year of $196 million. In its court filing, Algoma listed debts amounting to a debilitating $1.57 billion on assets it says are worth $ 1.37 billion. If the company hadn’t sought bankruptcy protection, it would be in default on a $32-million interest payment due this week. It has already defaulted on its line of credit.

The interest payment arises from $551 million worth of bonds issued in

1995 and 1996, the largest single piece of the company’s debt. The money was raised to build a state-of-the-art facility called the DSPC, for direct strip production complex, completed in 1997. But the bonds were expensive—they were issued in U.S. dollars and pay a yield of 14.38 per cent.

The company’s troubles don’t begin and end with the debt—they are only

made worse by it, says Alexander Adam, Algoma’s president and chief executive. “We did everything we could to avoid this option,” he says. The problems started, he argues, with imported steel that has flooded into the North American market at below-cost prices. The imported metal, which now accounts for 44 per cent of domestic Canadian consumption, has pulled down prices by roughly 30 per cent, depending on the product. Across the continent, the industry is in dire straits, Adam points out. In the United States, five of 12 integrated steel companies have filed or recently emerged from restructuring proceedings. “Other com-


panies are dumping and are injuring the North American industry. That’s a fact,” Adam says. “It’s not something Algoma Steel concocted.”

Adam has been travelling, visiting his major customers—auto and auto-parts manufacturers, steel service centres, and pipe and tubing fabricators. “I’m basically reassuring customers that we’re going to get this restructuring done,” he says. He admits the company’s debt cost is “out of proportion” to the rest of the industry— four times that of Canada’s two other major steel producers, Stelco Inc. and Dofasco Inc. The DSPC, built using the expensive money, is so state-ofthe-art, it took years to get all the bugs out of the system. Ironically, just last May, the month following Algoma’s bankruptcy protection filing, the DSPC reached production levels forecast at its construction—two years behind schedule. Still, despite the high cost and the delays, Adam defends the new facility: “We’ve revitalized our assets from a fairly tired set to a good set.”

Others will argue Algoma’s problems go back well before the current round of alleged dumping, or even the 19951996 financing deal. Located in Northern Ontario, the plant is too far from markets, some say. Mismanagement of assets leading up to the company’s near collapse in the early 1990s has been an ongoing issue, say others. Then there is labour strife, especially a debilitating four-month strike in 1990.

None of this matters to Hap Stephen, a high-profile restructuring expert hired by Algoma’s board in May. Stephen, who has managed revamps of some of Canada’s largest companies—Eaton’s, Repap—was at the Algoma table in 1992. “I guess hindsight’s great,” he says sardonically, when asked if the 19951996 financing deal was a mistake, and makes it clear he’s looking forward. His aim? “To restore profitability,” he says, “even in poor pricing markets.” Stephen’s job is something like putting together a j igsaw puzzle with pieces that

keep changing shape. “None of the parties want to be at the table giving up anything,” he says of the three key players. For workers, their jobs and pensions are at stake, for the bondholders, the $515-million investment, plus interest. For the government of Ontario, a bankruptcy of Algoma Steel would be politically and economically cosdy, as it could jeopardize the entire Sault region. The province could be left holding the bag on the company’s pension, which would cost it up to $500 million. In the next few weeks, Stephen will lay out a plan to all of the stakeholders. “No one will like it,” he predicts, but adds they won’t be surprised. “Quite frankly, they know what we need to do to make Algoma viable.” He gives some hints: the bondholders “most likely” will be converted to equity owners. Costs must come down and that means employee concessions:

“We are going to have to deal with some issues in the collective agreement.” The province has made clear it won’t provide a bailout, but the company is not asking for one, Stephen says. “Really, the way these work is everybody has to give up a little, share a little of the pain to make the restructuring work.”

Part of his mandate, he says, is to look for a possible buyer or partner. But such a deal would more likely follow a restructuring agreement than be part of it.

CEO Adam says Ottawa must act on the dumping issue. The industry, which has filed a series of lawsuits with federal authorities, isn’t asking for protection, but for anti-dumping laws to be upheld. “If you envision yourself a world superpower, you wouldn’t want to be totally dependent on other parts of the world for primary materials like steel,” Adam says. The U.S. government has already launched, through the International Trade Commission, an investigation into imports into its market. Ottawa is watching to see if the U.S. action results in steel being diverted to Canada. If so, the feds will invoke safeguard provisions, International Trade Minister Pierre Pettigrew said recently. That’s not enough for the industry, which is calling on Ottawa to act more forcefully

against perceived unfair trade. “We shouldn’t have our business trashed by people who break the law,” Adam declares.

As for Algoma, the CEO expresses guarded optimism. “There is no scenario that makes sense with this place shutting down,” he says. But saving it will be painful;

workers will not be “unscathed.” On the other hand, he wants to reassure customers and employees. “It is a fine line you walk.” James Smith, a longtime Algoma Steel worker, may feel some chill from Adam’s remarks, but he echoes at least part of his

boss’s views. “We’re asking the federal government to level the playing field,” he says, sitting on a stool and drinking coffee at the island counter in his kitchen. Smith, like Bonell, was a new hire in the early ’70s, brought on as a welding apprentice. A couple of years into the job, Smith was standing on a giant manhole cover when it suddenly blew. The accident killed a co-worker. The beefy football-playing Smith spent four years in and out of hospital. When he finally returned to work, it was to an office job. Next year, shortly before his 49th birthday, Smith will be eligible to retire and draw on the company pension. He says the failure of Algoma would devastate the town. “I don’t like to brag,” he says, but “Algoma is Sault Ste. Marie.”

Algoma’s wage and pension bill in 2000 exceeds $300 million, he points out, almost all of it going to local people. The city’s railway, trucking and shipping industries are in the Sault because of Algoma. Residents, fearing the worst, have already begun to cut back on spending, says Smith’s wife, Jan. Still, her husband, like many Saultites, is hopeful. He feels Algoma was more likely to have gone under in 1991, during the last crisis. Now, with the state-of-the-art DSPC, the company has a chance, he believes.

In his garage, Smith has a ’71 Boss 351 Mustang that Jan calls “the red shelf,” for the stuff accumulating on it. James says he is waiting to retire to fix it up. And who knows? If both the car and Algoma get fixed in time, maybe they’ll bring back cruising on Queen Street. ESI