By Amy Gorgueiro
In an attempt to pull the company out of Chapter 11 bankruptcy, the Emergency Steel Loan Guarantee Board has approved Geneva Steel’s application for a $110 million term loan.
Joseph A. Cannon, chairman of the board and chief executive officer of Geneva Steel said everyone is happy and relieved.
“(The loan guarantee) is a critical element for getting out of Chapter 11,” he said.
Geneva Steel is filing a plan of reorganization which will demonstrate that the company will not go bankrupt again, Cannon said.
The loan was granted under a U.S. government $1 billion loan guarantee under the Emergency Steel Loan Guarantee Program. Cannon said the loan guarantees 85 percent of the loan.
Cannon said the decision would not affect taxpayers. Instead, the government will act like co-signers to enhance the company’s credit while the actual loan will come from Citicorp USA.
Geneva Steel was one of four steel companies that received the loan guarantee, Cannon said. A total of 13 companies applied for the program.
Cannon said Geneva Steel filed for Chapter 11 a year and a half ago when the cycle of the steel industry was at its worst. The company was not able to make interest payments on loans and had to cut production by 50 percent and prices by 30 percent.
The Act was originally passed to provide loans for steel companies already in, or close to, bankruptcy, according to Congressman Visclosky of Indiana’s First Congressional District.
According to the Act passed in 1999, “the United States steel industry has been severely harmed by a record surge of more than 40,000,000 tons of steel imports into the United States in 1998, caused by the world financial crisis; this surge in imports resulted in the loss of more than 10,000 steel worker jobs in 1998, and was the imminent cause of three bankruptcies by medium-sized steel companies.”
Geneva Steel was one of the companies named within the Act because of bankruptcy. Acme Steel and Laclede Steel were also named.
According to the Act, the loan should be paid in full no later than December 31, 2005.
In conjunction with the loan, Geneva Steel will also receive $25 million from bondholders in the form of equity and a line of credit, Cannon said. The amount of the line of credit is under negotiation. Cannon said a decision should be reached by July 20.
According to the Act, “a strong steel industry is necessary to the adequate defense preparedness of the United States in order to have sufficient steel available to build the ships, tanks, planes, and armaments necessary for the national defense.”
Cannon said Geneva Steel was originally built in Utah during WWII to manufacture steel for war needs.