Court File and Parties

COURT FILE NO.: CV-14-10695-00CL DATE: 20160510 SUPERIOR COURT OF JUSTICE - ONTARIO

IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, as amended AND IN THE MATTER OF A PROPOSED PLAN OF COMPROMISE OR ARRANGEMENT WITH RESPECT TO U.S. STEEL CANADA INC.

BEFORE: Mr. Justice H. Wilton-Siegel

COUNSEL: Paul Steep and Stephen Fulton, for the Applicant U.S. Steel Canada Inc. Alan Mark and Gale Rubenstein, for the Province of Ontario Lily Harmer and Kris Borg-Olivier, for the USW, Local 1005 and Local 8782 Andrew Hatnay, James Sayce and Barbara Walancik, Representative Counsel for the non-unionized active employees and retirees Michael E. Barrack, Jeff Galway, Kiran Patel and Max Shapiro, for United States Steel Corporation Robert Staley, for the Monitor Ernst & Young Inc. Mike Kovacevic, for the City of Hamilton Patrick Riesterer, for Brookfield Partners

HEARD: April 29, 2016

Endorsement

[1] The applicant, U.S. Steel Canada Inc. (the “applicant” or “USSC”), sought an extension of the stay of proceedings under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the “CCAA”) to July 28, 2016, as the previous stay expired on April 29, 2016. At the conclusion of the hearing, the Court advised that the extension would be granted for written reasons to follow. This Endorsement sets out the written reasons for the Court’s determination.

[2] Section 11.02(3) of the CCAA provides that a court shall not make an order of the nature sought unless the applicant satisfies the court that circumstances exist that make the order appropriate and that “the applicant has acted, and is acting, in good faith and with due diligence.”

[3] These requirements are satisfied in the present circumstances. A sales and investment process (the “SISP”) is underway in Phase II, with a deadline for binding offers of May 13, 2016. There is reason to expect that one or more offers for the applicant to continue on a going-concern basis will be received. There is little doubt that the applicant is acting in good faith and with due diligence.

[4] The request for an extension of the stay under the CCAA to July 28, 2016 is supported by the chief restructuring officer of the applicant, the Monitor and the principal stakeholders of the applicant, save for United States Steel Corporation (“USS”) which seeks a shorter extension on conditions described below. Accordingly, there is no objection before the Court to an extension of the stay. The only issue is whether the extension should be to July 28 or May 26, as USS argues, and whether it should be on the terms sought by USS.

[5] USS argues that the stay should not be extended beyond a reasonable period for evaluation of the bids received on Phase II of the SISP. In addition, USS argues that the Court should mandate disclosure of the Phase II bids to all stakeholders, including USS, upon receipt. It also seeks an order that USSC prepare an updated liquidation analysis, based on the Phase II bids, to enable a comparison of the options available to the applicant after receipt of any offers under the SISP.

[6] The applicant has indicated that it proposes to develop a plan for disclosure of the bids received in the Phase II process of the SISP after the deadline. Clearly, such a plan will be necessary to reach a restructuring plan, given that the successful bidder will need to address the positions of the major stakeholders. It will also be necessary to address stakeholder concerns, including USS, regarding the impact of continuation of the SISP process on their positions. However, USSC opposes the imposition at this time of any requirement to provide USS with summaries, or copies, of any bids received on Phase II of the SISP, or of any requirement to prepare an updated liquidation analysis based on such bids.

[7] The Court’s determination to grant the extension of the stay requested by USSC to July 28, 2016 was based on the following considerations.

[8] First, in USSC’s estimation, the SISP currently underway will require a more extended period of time than is proposed by USS to complete negotiations with any successful bidder and to permit satisfaction of any conditions, including negotiations between such bidder and other affected stakeholders. This view is shared by the Union, the Province of Ontario and Representative Counsel. The applicant is proceeding under the CCAA. It is entitled to manage the restructuring process without restrictions which could jeopardize the prospects for a successful outcome.

[9] Second, there can be little doubt that a longer stay extension also furthers the prospect of a successful, going-concern restructuring, insofar as it provides greater certainty to USSC’s suppliers, its customers and its employees regarding the continued operations of the applicant.

[10] Third, as the Monitor points out, even if a going-concern restructuring were not feasible, a longer stay would be required to implement other arrangements to satisfy the claims of the creditors of the applicant, whether under the CCAA or otherwise.

[11] Fourth, USS submits that the Court should impose a shorter extension period to enable the Court to monitor the potential for value destruction to the detriment of the applicant’s creditors during the extension period. In particular, USS suggests that there is a serious, ongoing material deterioration in its position both as a secured creditor as well as an unsecured creditor of USSC. I am not persuaded, however, that the evidence before the Court on this issue is sufficient to require a shorter extension period for the following three reasons.

[12] First, USS places considerable emphasis on EBITDA losses of the applicant since October 1, 2015 as evidence of the deterioration of its secured position. However, the evidence before the Court – in the form of the current liquidation analysis, which has been provided to the parties on a confidential basis – evidences a fully secured position to the extent of USS’ secured claim.

[13] Second, USS argues that such historical EBITDA losses are suggestive of further losses that should be projected during the extension period. However, the Monitor’s Twenty-Fifth Report, dated April 22, 2016, addresses the EBITDA situation in two respects which indicate a reasonable possibility that there will be no material adverse change in that position over the period of the proposed extension. In paragraph 34 of that Report, the Monitor indicates that the preliminary forecast EDITBA is estimated to be positive for Q2 2016. It also states that cumulative EBITDA at the end of Q2 2016 is estimated to be consistent with, or slightly exceed, the Independent Business Plan the applicant implemented in October 2015 and substantially better by the end of fiscal 2016.

[14] Third, while USS is also a substantial unsecured creditor, it will not be the only significant unsecured creditor affected by the applicant’s failure to achieve a successful restructuring if that were to occur. The other significant unsecured creditors in such event – principally, the Province of Ontario, the Union and the non-unionized employees and retirees – will have very substantial claims as well. As noted above, these creditors support the extension and oppose the additional relief sought by USS. Moreover, in the event of an unsuccessful restructuring, it is not realistic to expect that there will be an expeditious process for satisfying the claims of the applicant’s creditors given the issues of quantum and priority of security that will be disputed.

[15] For the foregoing reasons, I conclude that a stay to July 28, 2016 is appropriate in the circumstances. I also conclude that it is not appropriate to impose the conditions sought by USS requiring the delivery of information by USSC for the following four principal reasons.

[16] First, and most important, at the present time, as mentioned, there is no clarity regarding the nature and number of bids for USSC or its assets that may be received under the SISP. That information will drive a determination not only of the manner in which USSC proceeds with respect to a restructuring plan, but also of the appropriate involvement of the other stakeholders, including USS, and the nature of disclosure that should be made to those stakeholders. It is therefore premature and unwise to mandate any particular disclosure at this time without being able to assess the consequences of such disclosure for the applicant’s prospects for a successful restructuring.

[17] Second, as mentioned above, the applicant has indicated that it proposes to develop a plan for disclosure of the bids received in the Phase II process of the SISP that is consistent with furthering the prospects for a successful restructuring. Given that intention, I think it is more appropriate to address disclosure issues after the parties have reviewed, and if possible informally negotiated, a proposed USSC plan for the involvement of stakeholders that USSC has developed based on the actual results of the SISP rather than to impose conditions based on speculation as to the likely outcome of the SISP.

[18] Third, for the reasons set out above, the USS concern for the potential for value destruction during the stay extension period is not a sufficient basis for ordering the immediate preparation of a new liquidation analysis.

[19] Fourth, USS is effectively seeking to amend the SISP order of the Court, dated January 12, 2016 (the “SISP Order”), to mandate disclosure of the Phase II bids that was not provided for in that Order. Instead, the SISP Order effectively left it to the applicant to fashion appropriate disclosure based on the results of the Phase II process, as the applicant’s obligations are limited to consultation with the stakeholders. In particular, there is no obligation on USSC to disclose offers received under Phase II, unlike the obligation to disclose letters of interest received under Phase I of the SISP. Any motion to amend the SISP Order should be brought on a basis that is informed by changed circumstances from those contemplated at the time of the SISP Order. At a minimum, that requires completion of Phase II of the SISP.

[20] Based on the foregoing, the relief sought by USS in its Notice of Objection dated April 15, 2016, in particular the relief sought in paragraph 24 thereof, is denied.

Wilton-Siegel J. Date: May 10, 2016