Speculation about WCI Steel's bankruptcy started circulating early in 2003.
Owned by New York billionaire Ira Rennert and his family, the Warren, Ohio, steelmaker was missing payments to suppliers. A lousy economy and tough competition were bleeding the mill of cash, even as it cut costs by outsourcing functions once performed by plant personnel.
"We have no intention of filing for federal bankruptcy protection," a mill spokesman told The Vindicator newspaper of Youngstown, Ohio.
By July, WCI was failing to make interest payments on its debt despite promises by Rennert's company to put up more money. By October WCI was in bankruptcy proceedings, where it would stay for years.
Sparrows Point and other steel mills operated these days by Rennert won't necessarily wind up in the same situation. But his RG Steel, which owns the Sparrows Point plant and a mill in Wheeling, W. Va., as well as the former WCI facility, is suffering similarly severe cash-flow problems.
RG Steel has failed to pay bills from key suppliers. It's in the process of shutting down its main Sparrows Point machine shop and outsourcing the work to contractors, who are also buying the equipment. And last week RG Steel moved to wind down operations and lay off workers at Sparrows Point for an indefinite period to try to stem losses that internal company memos show are millions of dollars a month.
It's a terrible start for Rennert and his Renco holding company, which bought Sparrows Point along with the other two mills in March from Severstal. (This is Rennert's second ownership of the former WCI plant, which was sold to the Russian Severstal after the 2003 bankruptcy filing.)
"The formation of RG Steel will create a dynamic, service-oriented company with strategically located facilities," Rennert's son, Ari Rennert, said in a canned statement at the time.
That's about the last thing anybody outside the plant has heard from the company since then. Last month a company spokeswoman said that 1,800 people were working at Sparrows Point, founded a century ago. But the company hasn't commented on its cash problems, its unpaid bills, the machine-shop situation or the surprise Christmas layoff notices.
Never exactly a fount of disclosure, Rennert is even more of a sphinx these days thanks to his use of bank financing to pay for his deals. Back when he floated publicly traded junk bonds at least he had to make filings with the Securities and Exchange Commission.
Many Sparrows Point employees were told a few days ago not to report for work this week and that the mill's operations would be scaled back to conserve cash. There have been no reports of similar layoffs at RG Steel's facilities in Warren and Wheeling, however.
At the same time, Sparrows Point has been late paying bills to suppliers such as Kinder Morgan, vendor of iron ore and coke, and paint manufacturer Sherwin-Williams. Sherwin-Williams sued RG Steel in Baltimore County District Court in November to recover what it said was $24,000 past due.
It's not as if these are marginal business partners. Missing payments to a key raw-materials supplier such as Kinder Morgan is not the same as stiffing the Kinko's or the caterers.
Also suing is Severstal, which says RG Steel reneged on cash-payment agreements to settle the final price on the sale of the three mills, according to American Metal Market. Severstal claims RG Steel engaged in "impermissible" accounting adjustments to reduce the price by at least $44.4 million, the trade publication reported.
RG Steel seems to think it can reduce the cash drain by suspending operations at Sparrows Point while continuing to sell steel from its other two plants. Much depends on the economy.
If by some rare chance commercial construction and the automobile industry pick up next year, Rennert's strategy of buying industrial assets cheap may pay off. If they don't, the $1.2 billion he paid for the three plants may not be cheap enough.
Sparrows Point was supposed to be the star of the RG Steel network, but it's looking more like the junior partner. It may be in Rennert's interest to avoid Chapter 11 proceedings, thereby maintaining his equity in the company.
But 2012 could be just as challenging as 2011. And his lawyers know their way around a bankruptcy court.