VINEYARD, Utah County — The approval of Geneva Steel's reorganization plan by a U.S. bankruptcy court judge allows the struggling company to hand over ownership of the steelmaking plant to its creditors.
Judge Glen E. Clark's Tuesday approval of the plan is good news for workers at Geneva, which employs about 1,700 workers. It means the plant will continue operating, and its financial woes may soon be over.
According to Geneva officials, the intent of the reorganization blueprint is to give the company flexibility throughout the business cycle, have access to money that will pay for improvements to the the plant and fulfill obligations necessary to emerge from bankruptcy court oversight.
Geneva's plan to emerge from bankruptcy hinges largely on financing from the U.S. government's Emergency Steel Loan Guarantee Program. The program's loan-guarantee board in June extended a guarantee offer to Geneva's financial partner.
The firm needs to close on the $110 million loan, which comes with an 85 percent guarantee by the government. Geneva also hopes to use a $125 million revolving line of credit from Citicorp USA.
Geneva officials said the plan "remains subject to consummation, which involves financial closings on the contemplated financings and the fulfillment of other conditions."
Financial documents are expected to be signed in early December, according to a company statement released after the judge's ruling.
"We believe that the plan will achieve our stated objectives and position Geneva as a strong competitor," said Joseph A. Cannon, chairman and CEO of Geneva Steel.
"Although the Chapter 11 process has been difficult," Cannon said, "it has allowed the company to address the financial issues that made it vulnerable to market disruptions."
In addition, according to the agreement, Cannon and other pre-bankruptcy shareholders will lose ownership interest in Geneva. Cannon and top executives also will report to the new owners. Geneva amassed most of its debt when the company spent $365 million to modernize its operations in the late 1980s and early 1990s.
The company also suffered when a surge of cheap foreign steel was dumped on the U.S. market in 1998.
Geneva experienced negative cash flow and on Feb. 1, 1999, the company filed for Chapter 11.
The company's pre-bankruptcy's creditors also will receive, in lieu of cash payments, nearly all the stock of the company, Cannon said in a statement.
Geneva does not expect to see profit margins until the end of the 2002 fiscal year, according to company projections. The company says it will see about a $2.5 million loss for its 2001 fiscal year.
E-MAIL: jeffh@desnews.com