Less than 10 cents on the dollar.
That's what a Chinese company is offering to pay for bankrupt Geneva Steel's equipment.
According to court documents, Qingdao Iron and Steel Group Co. said it is willing to buy the defunct company's assets for $35.3 million in cash — nearly $5 million less than what Joseph Cannon and a group of investors purchased the plant for from U.S. Steel in 1987.
The offer is less than 10 percent of the more than $400 million the Vineyard-based company poured into a modernization campaign to upgrade its facilities during the 1990s.
And the sale, if approved by the bankruptcy court, will cover about one-third of the roughly $108 million still owed to Geneva's secured creditors, namely the U.S. government and CitiCorp.
Yet so far, it's the company's best offer.
"There have been several offers made for various pieces of equipment and for the entire site," said Ken Johnsen, Geneva's chief executive officer, "but this is the first major offer that we've found acceptable."
Even though Geneva has signed an agreement to sell its equipment to Qingdao, Geneva is reserving the right to accept a higher offer should one be made before Jan. 30, the deadline for competing bids.
"There are still a couple other steel companies that could outbid them. I've literally been in discussions with other Chinese steel companies today," Johnsen said Tuesday. "The steel industry in China right now is expanding at a phenomenal rate. It's expanding at about 10 percent per year when the rest of the world is on average about 1 percent a year. The primary buyers for steel equipment these days are in China."
The sale to Qingdao includes the plant's core production line: the steelmaking facility known as Q-BOP, a slab caster that turns liquid steel into a slab, a rolling mill which rolls the steel into plate or sheet, and a plate finishing line.
Used steel equipment appeals to the Chinese steel mills, Johnsen said, because it is cheaper than new equipment and the lead time for installing the used equipment is shorter.
J. Thomas Beckett, an attorney representing Geneva's roughly 2,500 unsecured creditors who are collectively owed about $35 million, said he is encouraged by Qingdao's offer.
"There are still other assets to be sold," Beckett said. "I think that there is still a fair amount of substantial value in the emissions credits, in the water rights and in the real property. . . . The fact that this particular asset is to be sold for at least $35 million gives the unsecured creditors some hope."
Under bankruptcy rules, secured creditors have a higher priority to be paid over unsecured creditors.
Johnsen said the company has sold some water rights and emissions credits, but nothing significant. Earlier this month, Geneva sold its pipe mill equipment for $1.45 million to a company based in India.
And from the perspective of the used-equipment industry, Johnsen said Qingdao's offer is a reasonable price.
"It obviously represents a fairly small amount of the value," he said, "but you need to understand that when equipment is installed, about 30 percent of the cost is the equipment and the rest involves engineering, civil work and installation."
Geneva Steel has been in Chapter 11 bankruptcy reorganization since January 2002, the second time it filed for bankruptcy.
About 25 people still work at the company full time, most involved in the bankruptcy liquidation process, according to Carl Ramnitz, Geneva's vice president of human resources.
Geneva had been a major employer and tax-base provider in Utah County since it was built by the U.S. government during World War II. At one point under Cannon's tenure, the mill employed 2,850 people.
E-mail: danderton@desnews.com