Stelco Inc.: Bankruptcy and Restructuring
(10 pages of text)
In late 2003, the managing directors of Quantum Investors Inc., a private equity firm that specialized in distressed investing, needed to decide whether their firm should take action in the restructuring of Stelco Inc., a Canadian steel company on the verge of bankruptcy. Stelco had been unable to adapt to the changing dynamics of the steel industry, due to its high cost structure and low efficiency. Its share values had declined sharply and it had a deteriorating cash position. The managing directors of the private equity firm needed to decide on a potential approach to restructuring, including which securities to purchase, and a strategy for dealing with stakeholders to ensure a successful outcome for its investment.
This case can be used in an undergraduate or graduate business program or in a law program in a variety of contexts, including introductory or advanced courses on corporate finance, financial restructuring, bankruptcy, and alternative investing. Working through the case will thus give students the opportunity to
- examine a bankruptcy situation and understand the factors that led to the decline of the company;
- understand the motives and strategy of distressed debt investors and their strategy when investing;
- learn about the importance of the fulcrum security, the priority of claims in bankruptcy, and the role of negative control in a restructuring situation; and
- understand the steel industry as an example of a traditional manufacturing industry being affected by change.
Canada, Large, 2003
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