In a critical move to help continue daily operations, Bethlehem Steel Corp. said yesterday that it closed a deal for $450 million in financing just two days after filing for Chapter 11 bankruptcy protection.
GE Capital's Commercial Financing group is providing debtor-in-possession financing for the 97-year-old steel maker, which has been hit hard by foreign competition and the ailing economy. Bethlehem Steel will use the financing for general operating expenses, a company spokeswoman said.
"This financing is critical because it ensures, at least over the short term, that Bethlehem will continue to produce its products in a timely manner," said steel analyst Richard A. Henderson at Pershing, a division of Donaldson Lufkin Jenrette. "The key factor is that they can continue to concentrate on their operations as opposed to shutting down facilities to pay bills.
"This gives them breathing room and gives confidence to their customers."
Bethlehem Steel's finances have been deteriorating since 1999, when it lost $183 million. In July, the company was forced to renegotiate certain loan terms when its net worth fell below the level it was required to maintain. Through the third quarter of this year, the nation's third-largest steel manufacturer had a net loss of $1.4 billion.
Bethlehem Steel is the latest in a stream of steel companies to seek Chapter 11 bankruptcy protection this year, including LTV Corp., Republic Technologies International and Wheeling-Pittsburgh Steel Corp. Complaining of foreign manufacturers "dumping" steel in the United States at unfair discounts, the companies have pleaded for trade restrictions from the federal government and scrambled to cut expenses.
The company had just hired turnaround expert Robert S. Miller Jr. as its chairman and chief executive officer last month, and was in the process of securing a financial package when the situation soured.
Bethlehem Steel had received an earlier commitment from GE Capital for $550 million in July as part of an overall $750 million refinancing package, according to company spokeswoman Bette Kovach.
"But as we moved forward in time and continued pursuing that additional $200 million in financing, business conditions worsened," Kovach said. "That's when we decided to voluntarily pursue Chapter 11."
The debtor-in-possession funds from GE Capital - which is the primary financial backer of Bethlehem Steel - are not related to that earlier financing package, Kovach said.