May 25, 2018
We are pleased to report that we reached two favourable settlements regarding two proceedings, that in combination will translate into meaningful improvements to the pension benefits of the Wabush Salaried employees and retirees as well as a payment toward the terminated OPEBs. The two settlements are described below.
- The CCAA Plan of Compromise settlement
Generally, a “Plan of Compromise” in a CCAA proceeding is an agreement reached between the company and its creditors for the treatment of creditors’ claims for amounts owing to them by the company. For a CCAA Plan of Compromise to pass, it must be voted on by creditors and approved (also known as sanctioned) by the CCAA Court.
On April 13, 2018, the Bloom Lake CCAA Parties and the Wabush Mines CCAA Parties (the “CCAA Parties“) brought forward a motion to the court to file a draft Plan of Compromise (the “Initial CCAA Plan“). The Initial CCAA Plan was a proposed deal struck between the CCAA Parties and certain other stakeholders to settle certain claims and provide for some distributions.
Along with the Initial CCAA Plan, the CCAA Parties also brought a motion for court approval to hold meetings for creditors to vote on the Initial Plan. The Initial CCAA Plan also contained a mechanism that required Salaried Members to individually vote on the CCAA Plan or submit a proxy form designating the Monitor or another individual to vote on their behalf.
Under the Initial CCAA Plan, the Monitor estimated that contributions to the underfunded Salaried Plan (and USW Plan) would be in the range of $4-$6 million if the pension claims were held to be unsecured claims. We did not agree with the Initial CCAA Plan, which we believe did not provide sufficient benefits for the Salaried Members and because we were not involved in the negotiations. We also objected to the concept that the individual voting of the Salaried Members would be required to vote at a creditors’ meeting, rather than voting through their Representative Counsel.
The Voting Issue
The issue of the procedure of voting for the employees and retirees was brought before the CCAA Judge at a contested hearing. Our Montreal co-Representative Counsel, Mark E. Meland of FFMP, argued that Representative Counsel should vote the claims of the employees and retirees to ensure that the votes of all of the Salaried Members would be counted and that our group would have greater ability to negotiate an improved Plan of Compromise. On April 20, 2018, the CCAA Judge released his decision and granted Representative Counsel and USW a “deemed proxy” to vote the claims of the Salaried Members (and USW members). This decision was the first time that a CCAA court has granted representative counsel a discretionary deemed proxy to vote for or against a proposed CCAA plan. The CCAA Court also gave the parties one more month to discuss the Initial Plan and negotiate changes to it. To view copy of the decision please click here.
Negotiations for an improved Plan of Compromise
Our firm and FFMP engaged in discussions with the Wabush CCAA Parties and the Monitor for improvements to the Initial Plan. As a result of these negotiations, we are pleased to report that a guaranteed $11 million contribution will be made to the fund of the Salaried Plan (an increase from a range of $4-6 million under the Initial Plan). Claims for terminated health and life insurance benefits (collectively, “OPEBs“) will also receive a small distribution in the estimated amount of $2.36 million.
- Settlement of the Class Action
While the negotiations mentioned above were occurring, we also engaged in negotiations with Cleveland-Cliffs Inc. (formerly, Cliffs Natural Resources or “CNR“) on the Class Action that we filed in May 2017.
Given the uncertain recoveries for the Salaried Members in the CCAA proceeding, and the lengthy time for proceedings to be resolved, we separately filed a class action against CNR, Cliffs Mining Company (“CMC“), and their directors for the amounts that are owing to the Salaried Plan and the OPEB losses. The plaintiffs were the same Representatives appointed in the CCAA proceeding: Neil Johnson, Michael Keeper, Damien Lebel, and Terence Watt. We provided a copy of our claim to the USW, who filed a similar claim the following month. To view a copy of our claim, please click here.
On May 10, 2018, our firm, two of the retiree plaintiffs (Mike Keeper and Terry Watt), the USW, and Cleveland-Cliffs Inc. engaged in a mediation in Toronto which resulted in a settlement for an additional contribution of $7 million to be paid to the Salaried Plan (and $7 million for the USW Plan).
The two negotiations were reflected in an Amended Plan of Compromise (the “Amended CCAA Plan“), which is discussed in greater detail below. In total, the Salaried Plan will receive $18 million from both settlements (or a recovery of approximately 67% of the pension plan deficit amount). This will significantly improve the funded ratio of the Salaried Plan from its current 75% (at the wind-up date) to approximately 91%, which will translate into increases to your current monthly pensions.
The two settlements provide a combined total recovery for both Salaried and USW employees and retirees in the amount of $36 million in respect of the pension claims and approximately $13.27 million in respect of the OPEB claims. In total, for Salaried and Unionized employees and retirees, approximately $49 million will be distributed.
The Amended and Restated Plan of Compromise
On May 18, 2018, the CCAA Parties filed the Amended CCAA Plan with the CCAA Court reflecting the settlements that have been reached and for authorization to hold meetings of creditors to vote on the Amended CCAA Plan. The creditors’ meetings are currently scheduled for June 18, 2018 in Montréal.
If the Amended CCAA Plan passes the required vote of creditors at the creditors’ meetings, it must then be approved (known as sanctioned) by the CCAA Court as being fair and reasonable in order to become effective. The date of the approval hearing for the Amended CCAA Plan (known as the “sanction” hearing) is currently scheduled for June 29, 2018 before the CCAA Court in Montréal.
Summary of the Amended CCAA Plan and payments for Salaried Members
The terms of the Amended CCAA Plan and the related agreements are complicated and involve the different Wabush and Bloom Lake companies, different classes of creditors and different payment streams. We summarize some of the terms that are relevant to the Salaried Members below.
a) Pension Settlement
Morneau Shepell, as the pension plan administrator (the “Plan Administrator”) of the Salaried Plan and the Union Plan (collectively, the “Pension Plans“), filed claims for the amounts owing for both the Salaried Plan and USW Plan as at December 16, 2015, in the following amounts:
- Salaried Pension Plan wind-up deficit – $27,341,000
- Union Pension Plan wind-up deficit – $28,681,492
Under the Amended CCAA Plan, separate cash pools will be created exclusively for the Salaried and Union pension claims to ensure that the Pension Plans each receive a guaranteed payment of $18 million.
b) OPEB Settlement
As noted above, in June 2015, the Wabush CCAA Parties terminated the payment of OPEBs payable to retirees. We filed claims on behalf of the Salaried Members for your OPEB losses against Wabush Mines in the CCAA proceedings. Under current law, an OPEB claim is an unsecured claim.
Pursuant to the settlement reached in the Amended CCAA Plan, OPEB claims for the Salaried Members will be allowed by the Monitor in the claim amount of $26,090,100.
Based on estimates provided by the Monitor, we expect that distributions on account of OPEB and other employee claims could be in the order of approximately $2.3 million (subject to adjustment). This amount is subject to other elements that are still ongoing in the CCAA file, including potential future realizations and the resolution of non-employee claims and that are not in relation to ex-employees and that remain in dispute. The final amount of the distribution associated with OPEB and other employee claims will not be known with certainty for some time, but the Representatives are satisfied that this amount will be significantly larger than without the proposed Amended CCAA Plan. We will provide further information about the timing of distributions in respect of OPEB claims in the future as soon as more information is available.
c) Discontinuance of the Litigation
i. Appeal of the Pension Priority Motion before the Quebec Court of Appeal
At the outset of these CCAA proceedings, we asserted a priority claim in favour of the Salaried Plan members for the amounts owing by Wabush Mines to the Salaried Plan. This priority claim is based on the deemed trust priority provisions in section 32 of the Newfoundland and Labrador Pension Benefits Act (“NLPBA“) and the 2013 decision of the Supreme Court of Canada in the case of Indalex.
In September, 2016, the Monitor filed a motion for directions with questions it sought to have the CCAA Court resolve relating to the NLPBA deemed trust priority claim. In September 2017, the CCAA Court released its decision and held, among other things, that the NLPBA deemed trust priority was not effective in these CCAA proceedings. We and other pension parties obtained leave to appeal the CCAA Court’s decision to the Quebec Court of Appeal. The appeal hearing is scheduled to be heard from June 11-13, 2018 but, as a result of the settlements reached, this appeal will be discontinued under the Amended CCAA Plan.
ii. Discontinuance of the Monitor’s appeal to the Supreme Court of Canada of the Newfoundland Reference Decision
On March 27, 2017, the government of Newfoundland & Labrador directed that a Reference be brought before the Newfoundland Court of Appeal for interpretations of the deemed trust provisions in section 32 of the NLPBA. Graham Letto, M.H.A. was instrumental in bringing the Reference proceedings forward and provided assistance and support for the Wabush retirees throughout this process, including attending before the CCAA Court to make submissions in support of the Wabush employees and retirees.
We appeared before the Court of Appeal in September 2017 on the contested Reference hearing involving the Monitor, CCAA Parties, and other stakeholders.
As we previously reported, on January 15, 2018, the Court of Appeal released its Reference decision and made two important interpretations which in our view are favourable to the Salaried Members:
a) The deemed trusts in section 32 of the NLPBA extend to cover the entire wind-up deficit amount owing by the employer to the pension plan; and
b) The pension plan administrator’s “lien and charge” in section 32(4) of the NLPBA is a valid secured claim in favour of the pension plan administrator over the same amounts that are subject to the deemed trusts, and operates as a back-up remedy to the deemed trust for same amounts owing by an employer to a pension plan.
The Monitor and the City of Sept-Iles appealed the Reference decision to the Supreme Court of Canada. The hearing of the appeal is scheduled to be heard on October 18, 2018. As a result of the settlements reached, the Supreme Court of Canada appeal will also be discontinued.
d) Releases to CNR, CMC, and their directors
Generally, a “release” in a CCAA Plan of Compromise operates to protect a party from exposure to future liability. The Amended CCAA Plan provides for an extensive release for the benefit of the CCAA Parties, the parent companies (CNR and CMC) who are also the defendants in the Class Action, and their directors and officers (collectively, the “Released Parties“). Once the Amended CCAA Plan is approved by the CCAA Court, this means that the Released Parties cannot be sued. This is intended to protect CNR and CMC from future legal action in exchange for their contributions to the settlement funds to the Amended CCAA Plan.
The text of the Amended CCAA Plan and the related documents and agreements are posted on the Monitor’s website, and can also be accessed under the ‘Documents’ tab below.
The creditor voting process on the Amended CCAA Plan
i) Voting in respect of the Pension Deficit Claim
As noted above, the current pension plan administrator of the Salaried Plan (and the Union Plan) is Morneau Shepell. Under the voting protocol in the Amended CCAA Plan, Morneau Shepell, as the administrator, is entitled to one vote (as it is one creditor) in the amount of the wind-up deficit in respect of each pension plan. As required under the settlements, Morneau Shepell is required to vote in favour of the Amended CCAA Plan.
As noted above, Representative Counsel (our firm and FFMP) is deemed to be the proxy for all the Salaried Members, and is authorized to vote these claims on your behalf. You are not required to attend the creditors’ meeting in respect of your OPEB claims, nor do you have to complete any form to vote. We will vote the above claims in favour of the Amended CCAA Plan.
However, if you have a claim for the loss of OPEBs and you wish to vote against the Amended CCAA Plan, you may attend the meeting in person to cast your vote against it. If you wish to vote against the Amended CCAA Plan but will not be attending the meeting in person, you may appoint a proxy other than Representative Counsel by notifying the Monitor in writing (including e-mail) by no later than 12:00 p.m. on Friday, June 15, 2018.