By Kacey Earl
The fate of Geneva Steel is in jeopardy after Germany-based Deutsche Bank announced Tuesday Oct. 22 that they will not provide the application for a federal loan guarantee Geneva needs to survive.
Under the Emergency Steel Loan Guarantee Act, Geneva requires a loan guarantee due by November 15th in order to receive a $250 million term loan. The loan would have been used to repay its present term loan of $108.4 million, fund an electric arc furnace, convert to a mini-mill and restore approximately 1,100 jobs.
The electric arc furnace was a crucial part of Geneva''s recent plan to produce steel from scrap metal instead of iron ore and coke.
Only one week ago, Geneva Steel chairman Joseph Cannon was confident the company could survive the future with the electric arc furnace if finances went though, even after two bankruptcies in the past three years.
'We will make two principle products with the arc furnace: plate and hot rolled coil,' said Cannon, predicting the furnace''s success. 'To really put a bumper sticker on it, we would be the lowest cost plate producer in North America.'
Now, without financial support, Geneva must come up with an acceptable restructuring plan with the federal government and CitiCorp USA, its two biggest secured creditors.
This plan could include selling the company or breaking the company in parts.
The proposed electric arc furnace required a controversial $21 million power substation to be built by PacifiCorp.
PacifiCorp''s company spokesman, David Eskelsen, said the proposed substation would have been built before the company would have normally constructed it. Building it would have rested on Geneva''s guarantee in its ability to use the station in their new operations.
'If Geneva defaults, customers would pick up the costs of construction,' said Eskelsen.
Many were wary about the new substation since Utah PacifiCorp customers would be paying for $13 million of the project.
Nucor Steel, one of Geneva''s competitors, was against the substation construction.
'It is unfair for the state of Utah customers to be the guarantor of Geneva''s infrastructure improvement,' said Bowcutt. 'It''s an advance of when it is needed.'
Since financing did not go through for Geneva, the power substation will not be built.
'There is no need now to build the substation early,' said Eskelsen. 'We''re entering a phase in which we need to increase supplies of electricity to customers and we are considering different options of how to do that for a later time when it is needed.'
The U.S. steel industry is recently recovering from its worst recession in decades, causing many financial institutions to be justifiably cautious in giving money to an industry on shaky ground which could have accounted for the loan denial.