Bank Defends Mexican Deal From Steelworkers Criticism
PITTSBURGH (AP) _ Manufacturers Hanover Trust Co. on Thursday denied union claims that it gave the Mexican government a bigger break on troubled loans than it offered a debt-ridden American steel company.
A banking industry analyst supported the New York bank, saying Manufacturers Hanover and other U.S. lenders negotiated a loan repayment package that ″really nailed″ Mexico.
The response followed criticism earlier this week from Paul Rusen, the United Steelworkers union’s chief negotiator for 20,000 workers and retirees at Wheeling-Pittsburgh Steel Corp., which filed Tuesday for reorganization under federal bankruptcy law.
″It was a (repayment) stretchout deal in Mexico for 14 years,″ Rusen said. ″They cut the interest rates in half over that period, and ... the banks took equity in Mexican government-held operations. Some of that was Mexican steel industry.″
In a phone interview Thursday, Michael O’Neill, a spokesman for Manufacturers Hanover, said, ″That’s a figment of somebody’s imagination.″
Lawrence Cohn, a banking industry analyst for the investment firm of Dean Witter Reynolds Inc., agreed.
″In the case of the Mexican government, the banks ... deferred principal payments but jacked up the rate on the loans,″ Cohn said.″In a second go- round with Mexico after the borrower had regained financial health, the banks further stretched principal payments and lowered interest rates a little bit, but the rate they charged was still above the market rate. So they really nailed them.″
Both O’Neill and Cohn said it would be technically impossible for a U.S. bank to assume equity, or partial ownership, in a foreign government-owne d business.
″The reality is that the Mexicans offered equity ... but the banks turned them down cold,″ Cohn said. ″That offer is still on the table. They continue to offer some debt for some equity, and the banks haven’t shown any interest.″
Mexico was one of four Latin American countries with troubled loans that renegotiated payment schedules with U.S. lenders in the last few years. Mexico’s foreign debt is estimated to be exceeded among Third World countries only by Brazil, which owes around $100 billion.
Wheeling-Pittsburgh filed for reorganization under Chapter 11 of the Federal Bankruptcy Act after failing to seal tentative agreements that would have eased repayment terms on $514 million in loans and reduced labor costs by $126 million over two years in a renegotiated contract.
Rusen said Wheeling-Pittsburgh Chairman Dennis J. Carney originally sought terms similar to those purportedly offered in Mexico. But in exchange for renegotiating the loans, Manufacturers Hanover, as bargaining agent for 24 lenders, persuaded Carney to give them a mortgage on raw materials, accounts receivable and other current assets.
Because of that aspect of the lender agreement, Rusen said, he withheld his agreement to lower hourly labor costs from the current $21.40 to $19.50 in the first year of a two-year contract and $20 in the second.
Without the union’s concessions, the bankers would not agree to implement their loan restructuring plan, and company officials blamed Rusen’s decision for forcing the bankruptcy filing.
Rusen said the company’s agreement to grant a lien in exchange for deferred payments on $210 million in interest and $40 million in new loans would have exposed Wheeling-Pittsburgh to foreclosure should a recession occur, as Rusen expects, within the next year or so.
″If the price of steel were to drop $10 a ton at any given time, this company would have run out of money within a 12-month period. They would have run as much as $86 million cash flow loss in a single year,″ Rusen said. ″The banks would have come in, grabbed up the current assets ... and walked away.
″The only thing my members would have left is unemployment lines.″
Rusen said the protection from creditors’ lawsuits afforded by Chapter 11 gives Wheeling-Pittsburgh a better chance of surviving than did the lending agreement with its prospect of foreclosure and liquidation of the company.