VINEYARD — Geneva Steel announced Monday that its reorganization plan, which shields the company from creditors, has been approved by the U.S. Bankruptcy Court.
Creditors, bondholders and shareholders now have until Oct. 6 to accept or reject the plan. A hearing on confirmation of the plan will be held Oct. 13.
The plan projects that Geneva will emerge from Chapter 11 by October. The steel company will borrow $110 million on a five-year term loan that is 85 percent guaranteed by the U.S. government and expects to raise $25 million by giving unsecured creditors the right to purchase convertible preferred stock.
An additional $125 million was secured in a revolving line of credit through Citicorp USA.
Unsecured investors such as Union Pacific, USX and the Utah State Tax Commission will receive in place of cash payments substantially all of the common stock of the company and the right to purchase convertible preferred stock.
The plan has three objectives: to provide flexibility throughout the business cycle, to fund required capital expenditures and to emerge from Chapter 11.
"We believe that the plan will achieve our stated objectives and position Geneva as a strong competitor," said Joseph A. Cannon, Geneva chairman and CEO. "Although the Chapter 11 process has been difficult, it has allowed the company to address the financial issues that made us vulnerable to market disruptions."
Geneva had already amassed significant debt, spending $365 million since 1989 to modernize its operations, when a surge of cheap foreign steel was dumped into the U.S. market in 1998. Geneva experienced negative cash flow and on Feb. 1, 1999, the company filed for Chapter 11.
Geneva's financial woes forced it to lay off 70 employees last week. Company officials attributed the layoffs to the continued low price of imported steel. The layoffs should only last for a couple of weeks, said Carl Ramnitz, Geneva's vice president of human resources.
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