Sparrows Point owner RG Steel files for Chapter 11

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RG Steel LLC, owner and operator of the Sparrows Point steel mill in Baltimore County, has filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Delaware.

The company, which was formed in March 2011 after acquiring steel mills in Sparrows Point, Wheeling, W.Va., and Warren, Ohio, said in court documents that it has more than $1 billion in liabilities and more than $1 billion in assets.

The bankruptcy filing will not prevent about 2,000 layoffs at the Sparrows Point facility, which will begin Monday as the company idles operations at the 123-year-old steel mill. Layoffs include 1,714 hourly and 261 salaried employees.

“The plants are in operation and are processing orders on hand,” said Bette Kovach, an RG Steel spokeswoman. “They will wind down operations in June, which will result in employee layoffs.”

RG Steel has hired New York-based law firm Willkie Farr and Gallagher LLP and Wilmington, Del.-based Morris, Nichols, Arsht and Tunnell LLP as counsel during the bankruptcy proceedings. New York-based Conway MacKenzie Inc. was hired as restructuring advisor for the company and Sea Port Group Securities LLC will act as lead investment banker.

RG Steel CEO John Goodwin said in a statement that the company is attempting to find a buyer that could preserve jobs at the three facilities and protect the investments made by creditors. The company may be sold off in pieces.

“Despite the company’s aggressive cost reduction efforts, significant improvements in its cost structure and substantial investment capital, the company has been unable to overcome the impact of the continued deterioration of the market and the inability of the industry to sustain a meaningful recovery,” the statement said. “By voluntarily filing for Chapter 11, we will have the opportunity to use the court-supervised process to implement an orderly asset preservation plan and explore other options, including soliciting offers to purchase all or certain [parts] of the company’s assets.”

Court documents indicate the company’s largest creditor is Severstal U.S. Holdings II. Inc., which can claim more than $36.5 million. RG Steel purchased the Sparrows Point plant from Severstal after the Russia-based company was forced to idle operations in 2011. RG Steel restarted those idled operations, temporarily saving the jobs that are again in jeopardy.

Gov. Martin O’Malley said in a statement that state agencies helped RG Steel retrain its workforce through incentive programs but that the steel-making market was too weak for those efforts to have a lasting impact on operations at Sparrows Point.

“It is unfortunate that market and industry forces too large to be overcome by any form of incentive assistance have brought RG to its current circumstances,” O’Malley said.

Mountain State Carbon LLC, a Follansbee, W.Va., coke-making operation in which RG Steel holds a 50 percent stake, is owed more than $22.4 million. Coke, made from coal, is used in a blast furnace during the smelting process. RG Steel also owes London-based Balli Steel PLC more than $15.7 million.

Baltimore County is owed more than $4.5 million and the city is owed more than $1.9 million. Baltimore Gas & Electric Co. is also owed more than $1.9 million.

The bankruptcy filing came one day after Baltimore County Executive Kevin Kamenetz announced the creation of a partnership among 16 business and private sector leaders that will advise the county on the best use of industrial property on the Sparrows Point peninsula.

Kamenetz said the partnership would help the county “capitalize on the tremendous growth and expansion at the Port of Baltimore.”

The group is expected to consider how to best use portions of the former Bethlehem Steel real estate in an attempt to support future steel making. O’Malley said the state would assist the county in doing so.

RG Steel is the fourth-largest flat-rolled steel company in the country, with an annual steel-making capacity of 7.5 million tons. Steel was first produced at Sparrows Point by Pennsylvania Steel Company in 1889. For nearly 90 years, the plant was part of an enormous steel-making and ship-building complex owned by Bethlehem Steel.

Between the plant and shipyard, more than 30,000 people were employed during World War II, when the plant provided steel for hundreds of ships. By the mid-20th century, Sparrows Point was the largest steel mill in the world.

But the mill has been under duress since the early 2000s, changing ownership multiple times in that span before RG Steel got the mill running just over a year ago.