By KEVIN NEVERS
On Dec. 29, 2000, four days after Christmas, LTV Steel filed for Chapter 11
Eleven months later, on Tuesday, LTV petitioned the U.S. Bankruptcy Court
for permission to cease production at its East Chicago and Cleveland, Ohio,
plants and prepare those facilities for sale as part of a Chapter 7 filing.
The difference between Chapter 11 and Chapter 7 is a crucial one, and in the
case of Bethlehem Steel Corporation—which filed for Chapter 11 on Oct.
15—could be measured in months and in the $450 million debtor-in-possession
financing secured from GE Capital.
Corporations which file for Chapter 11 continue operation in the hope of
repaying their creditors, but in the meantime obtain “protection” from the
bankruptcy court while they reorganize their debts. In other words,
liabilities incurred prior to the filing are frozen temporarily, but those
incurred after the filing the corporations must pay as they go. Bethlehem is
using the $450 million debtor-in-possession financing to keep its facilities
Corporations which file for Chapter 7, on the other hand, are conceding that
they no longer have sufficient liquidity or capital to remain in operation
and see no likelihood of the future viability of their concerns. These
corporations have no further obligation to their creditors, and their
property is forfeited and sold for cash to apply to their debt.
Bethlehem and its United Steelworkers of America locals are currently
negotiating a reorganization plan in Pittsburgh, Pa., the goal of which is
to reduce operating costs sufficiently to allow the company to return to
profitability. So far, the USWA says, Bethlehem has proposed to cut a total
of 2,000 hourly and salaried jobs corporate-wide, 1,000 of them at its Burns
Harbor Division. The USWA also says that the company is seeking significant
reductions of its health care obligations to active and retired workers.
If Bethlehem successfully emerges from Chapter 11 and returns to
profitability, of course, it will continue to make 100 percent pension
payments to its retirees or their survivors, although under any
reorganization plan they are likely to find themselves paying a greater
share of their own health care costs.
If Bethlehem were to file for Chapter 7, however—as LTV has done—the Pension
Benefit Guaranty Corporation, a federal agency, would assume the company’s
unfunded pension liabilities. But those pensions will be prorated according
to the age at which a pensioner retired. A pensioner who retired at age 65
would receive a maximum guarantee in 2002—according to statement released
Nov. 13 by the PBGA—of $3,579.55 monthly or $42,954.60 annually.
“The maximum guarantee applies to workers who retire at age 65,” that
statement said. “Maximum guarantees are adjusted for retirees at other ages
or those who elect survivor benefits. In some instances, where a pension
plan has adequate resources or PBGC recovers sufficient amounts, a
participant may receive benefits in excess of the maximum guarantee.”
Earlier this year, the PBGC estimated that LTV pensioners who retired at 65
would have been eligible in 2001 for an annual guarantee of $40,704.72;
those who retired at 62, a guarantee of $32,156.64; those who retired at 60,
a guarantee of $26,457.97; and those who retired at 55, a guarantee of
Should Bethlehem file for Chapter 7, its retirees would lose all of their
health care coverage.
Paul Gipson, president of USWA Local 6787, estimated that around $5 billion
of the company’s pension plan is funded, around $2 billion unfunded. That
pension plan makes the USWA Bethlehem’s largest creditor.
The PBGC says that approximately 541,000 retirees in 2,900 pension plans
currently rely on the agency for their retirement income.