VINEYARD, Utah County — Geneva Steel secured a major piece of its bankruptcy reorganization plan Friday when the U.S. Department of Commerce agreed to guarantee most of a $110 million loan to the steelmaker.
The loan guarantee, which means lender Citicorp USA won't have to worry about default on 85 percent of its planned loan to Geneva, was viewed among the 1,800 employees at the plant as the beginning of the end to Geneva's bankruptcy problems. Geneva, which filed for Chapter 11 in February 1999, is expected to file a reorganization plan in U.S. District Court sometime next month.
Joseph A. Cannon, chairman of the board and chief executive officer, said the fax machines at Geneva started buzzing soon after company executives got word of the loan guarantee Friday afternoon.
"Everybody had a smile on their face," he said.
Geneva executives see the $110 million government-backed loan from Citicorp as one of three major pieces in the company's reorganization plan. The company also plans to use its assets to secure a $125 million line of credit through Citicorp, and it expects to receive new equity totaling $25 million in the form of investment by Geneva's former creditors, who will be issued preferred stock.
The reorganization plan should allow Geneva's interest payments to drop from about $45 million annually to $10 million, executives said. That will free up cash, and the increased liquidity should allow Geneva to pursue acquisitions and joint ventures it believes are necessary to stay viable.
The company hopes a planned new walking beam furnace will make operations more efficient, and Geneva has secured a promise from the U.S. Department of Energy for a $150 million grant toward a proposed $1 billion ironmaking facility. The high-tech, innovative ironmaking facility would allow Geneva to tap Utah's vast, but currently unusable, supply of coal.
But much of the focus at Geneva since Jan. 31, when Citicorp filed a massive application on behalf of Geneva under the Emergency Steel Loan Guarantee Program, has been on the $110 million
loan. Executives this week waited on pins and needles for the guarantee board's decision.
"Everybody's very happy," said Geneva Vice President Kenneth C. Johnsen. "It really is the last piece in the puzzle to put our reorganization plan together."
The guarantee was important because it's difficult to convince lenders to make loans based solely on steel assets, Johnsen said. If Geneva hadn't received the loan guarantee, it still may have been able to pull out of bankruptcy, but it would have been more difficult, executives said.
"This guarantee is absolutely critical to our plan," Johnsen said. "Without the guarantee, we would have had to go to plan B."
Along with Geneva, three other steel companies received word Friday that their lenders had received a guarantee from the Department of Commerce. Those companies and their loan amounts included GS Technologies Operating Co. in Charlotte, N.C. ($50 million); Northwestern Steel and Wire Co. in Sterling, Ill. ($170 million); and Wheeling-Pittsburgh Steel Corp. in Wheeling, W.Va. ($35 million).
Three of the companies plan to get their loans from Citicorp. Geneva officials were mildly surprised there weren't more steel companies on the list. The Department of Commerce had made plans to guarantee $1.5 billion worth of loans to steel companies that suffered the effects of steel dumping, or low-priced imports, last year.
It was that market phenomenon — along with the fact Geneva was still highly leveraged after its multimillion-dollar modernization a decade ago — that led the company to seek Chapter 11 protection last year. Since then, steel dumping was curtailed and the market has improved for Geneva's products, officials say.
Geneva ships steel plate, hot-rolled coil and pipe primarily to customers in the western United States. Many of Geneva's products are used for construction of barges or storage tanks.
Geneva's products have entered a relatively strong market during the past two quarters. For the first time since declaring bankruptcy, Geneva in February announced a profitable quarter. For the period ending Dec. 31, 1999, Geneva turned a profit of $1.8 million.
Currently, the company operates two of its three blast furnaces. There were times in 1999 when Geneva operated only one blast furnace.
Some things at Geneva actually have improved since the Chapter 11 filing. The company's on-time deliveries, man-hours per tons of steel and customer complaints per tons of steel are at their best levels ever, said Timothy R. Clark, vice president for customer service and operations.
Despite Geneva's recent struggles, company executives remain optimistic the steelmaker can stay viable for years to come.
"The bumper sticker version," he said, "is we're going to be around for a very long time."