Steelmaker seeks protection

March 7, 2002 Posted: 1142 GMT

NEW YORK (Reuters) -- One day after President Bush announced tariffs aimed at rescuing the ailing steel industry, National Steel Corp. filed for Chapter 11 bankruptcy, the latest steelmaker to fall prey to depressed prices, high pension costs and tough competition from imports.

National Steel, which is 53 percent owned by Japan's NKK Corp., said Wednesday it had an agreement in principle for up to $450 million of debtor-in-possession financing with its existing senior bank group, subject to court approval.

With the new financing and protections provided by the bankruptcy code, the Mishawaka, Ind.-based company said it would be able to pay vendors for all goods and services provided after the filing date. Under the Bush administration's plan, tariffs ranging up to 30 percent would be imposed for three years on a variety of imported steel products.

The plan, however, did not answer the steel industry's plea for federal assistance with retiree healthcare and pension costs, known as legacy liabilities. It came as no surprise, therefore, that the fifth-largest U.S. integrated steelmaker, which has massive pension costs from its legacy, filed for bankruptcy, said one analyst.

The Bush plan has met with opposition from some of the country's biggest trade partners, including the 15-nation European Union, which has vowed to fight the tariffs.

The government "will give trade relief, but it doesn't seem like it will give much on legacy," said Michael Gambardella, an analyst with J.P. Morgan. "With that kind of 'no' out there, I guess they decided to file for bankruptcy. I don't think they had much cash left."

National Steel is one of the largest U.S. producers of carbon flat-rolled steel, shipping about six million tons annually, mainly to car and appliance makers. More than 28 U.S. steel companies have sought bankruptcy protection since late 1997, just before record imports of steel peaked in 1998.

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The company said it will continue to discuss a potential merger agreement with United States Steel Corp.(X: Research, Estimates), as well as consider other alternatives.

Chapter 11 bankruptcy allows a company to reorganize and restructure its debt with lenders while continuing operations.

Shares of National Steel (NS: Research, Estimates) closed at $1.03 Wednesday when they were halted on the New York Stock Exchange.