PBGC Files $97 Million Suit Against RG Parent
WHEELING – A federal agency believes the Renco Group dumped 24.5 percent of its ownership in RG Steel – prior to the steelmaker’s bankruptcy filing – specifically to evade pension obligations to about 1,350 retirees.
Therefore, the Pension Benefit Guaranty Corp. filed a $97 million lawsuit against New York City-based Renco in U.S. District Court in New York. The amount sought includes the pension plans’ unfunded benefit liabilities, unpaid minimum funding contributions and termination premiums.
Renco denies the PBGC’s claims.
In March 2011, Renco formed RG Steel upon acquiring the former Wheeling-Pittsburgh Steel Corp. assets from Russian steelmaker OAO Severstal for about $1.2 billion. Little more than a year later, RG filed for bankruptcy, leading to the liquidation of the historic Upper Ohio Valley steel mills at Mingo Junction, Steubenville, Martins Ferry, Yorkville and Beech Bottom.
According to the complaint, Renco sold 24.5 percent of its stake in RG to New York City-based investment firm Cerberus Capital Management in January 2012. Officials with the PBGC allege Renco did this after the company “gave assurances that no transaction changing its ownership status was imminent.”
According to the federal Employee Retirement Income Security Act, a firm that owns 80 percent of a company’s assets is responsible for the company’s pension obligations.
“A principal purpose of this proposed transaction was to dilute Renco’s ownership in RG Steel below the 80 percent threshold set forth in ERISA in order to break up the controlled group, thereby allowing Renco to evade liabilities owed to PBGC if the plans were to terminate,” the complaint states.
On Jan. 18, 2012, PBGC officials state that Renco publicly proclaimed the transaction with Cerberus would improve RG’s financial health. However, RG filed for bankruptcy less than five months later, ultimately liquidating its assets.
In November, the PBGC took responsibility for many of these pension plans.
Renco spokesman Andrew Shea said the government has no case, stating, “The facts will show that these claims are baseless.”