Sale of RG Steel mills extended by up to 4 weeks

Thu Jun 21, 2012 5:26pm EDT

* Creditors, lenders agree to extend sale process

* Creditors said rushed sale would cut price

* Auction could be held Aug. 21 if initial bidder emerges

By Tom Hals

WILMINGTON, Del, June 21 (Reuters) - RG Steel will have up to four extra weeks to find a buyer for its three mills after unsecured creditors objected to the bankrupt steelmaker's original auction schedule as a rushed fire sale.

The extended schedule, which could push the auction of the mills to Aug. 21, came after hours of negotiations between the company and its creditors and lenders on Thursday.

"We think it has been a really good outcome," Matthew Feldman, of law firm Willkie Farr & Gallagher, which represents RG Steel, said in U.S. Bankruptcy Court in Delaware on Thursday.

The company is shutting down its three mills, which it bought from Russian steelmaker Severstal for $1.2 billion last year. Falling steel prices and rising raw materials costs squeezed margins and forced the company into bankruptcy on May 31.

Its mills include Sparrows Point near Baltimore, Maryland, which is among the largest U.S. steel-making plants and had employed 2,000.

The company will now have up to Aug. 24 to close the sale of the mills, rather than July 27 as originally proposed, Shaunna Jones, another Willkie Farr attorney, said at the hearing.

The deadline was set by terms in the company's bankruptcy loan, which is known as a debtor-in-possession loan and is used to fund operations in Chapter 11.

If the company does not have an initial bidder, known as a "stalking horse," by July 30, the auction would be held the next day and RG Steel would be required to close the sale by Aug. 10, Jones said.

Stalking horse bidders are used to try to drive up interest and prices in auctions.

The unsecured creditors committee, which includes the United Steelworkers, suppliers and the Pension Benefit Guaranty Corp, said in court documents that a rushed sale would lead to a paltry recovery and leave little hope of keeping the plants operating.

The committee also raised suspicions that the sale was designed to give Renco Group, RG Steel's owner, an advantage in the auction for the mills.

The committee said in court documents that a rushed process would limit rival bidders' ability to perform due diligence. The committee noted that Renco was also not required to meet some bidding requirements.

In addition, auction rules would allow Renco to bid what it is owed. Renco has said it is a secured creditor, which the creditors' committee disputes.

The committee has said there were many interested parties performing due diligence on RG Steel's assets, although the sale comes in a very difficult market.

Lakshmi Mittal, the chief executive of ArcelorMittal, the world's largest steel producer, said at a steel conference in New York on Tuesday: "There is enough over capacity in the world," adding that "this is not the time to acquire more growth."

The case is In Re: WP Steel Venture LLC, U.S. Bankruptcy Court for the District of Delaware, No. 12-11661.

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