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Billionaire relents in showdown over pension

New York investor Ira Rennert has agreed to take responsibility for an Ohio steelmaker’s underfunded pension plan.
/ Source: The Associated Press

With millions from his sale of the company that makes Hummer vehicles at stake and his mammoth Hamptons estate perhaps in jeopardy, billionaire Ira Rennert decided to cut a deal.

The New York investor has agreed to take responsibility for an Ohio steelmaker’s underfunded pension plan, likely capping a fight over who should pay the retirement benefits for 1,250 workers and about 800 retirees.

Under the plan, The Renco Group Inc., the New York investment firm owned by Rennert, will assume responsibility for the pension plan — underfunded by $117 million — as part of a deal that would allow WCI Steel Inc. to exit bankruptcy protection. Renco is the parent company of WCI.

The deal, first reported by The Associated Press late Wednesday, resolves a tug of war between Rennert and the Pension Benefit Guaranty Corp., which filed suit last month in an attempt to hold Renco responsible for the unfunded pension liabilities.

In doing so, the PBGC threatened to seize other Rennert assets, saying the investor and his company had more than enough money to fulfill retirement promises to WCI workers. Rennert pocketed $930 million two years ago from the sale of A.M. General, which makes the Humvee and Hummer vehicles. He also owns a beachfront estate in the Hamptons with 29 bedrooms, 40 bathrooms, two bowling alleys and a movie theater.

The PBGC has been forced repeatedly in the past few years to take over pension obligations from cash-depleted companies that sought bankruptcy protection. But the situation at WCI was relatively unique, because while the company was under stress, its owner had the wealth to cover the pension obligations.

The PBGC is pleased by the agreement reached this week because it will insure that responsibility for the pensions remain with Renco, agency spokesman Gary Pastorius said Friday.

The deal still requires a judge’s approval, and union members must vote on a new labor contract delineated in the proposal to take the company out of bankruptcy. But if it goes forward, it will shift ownership of WCI to the company’s noteholders, the largest of which is a New York hedge fund, Harbinger Capital Partners Master Fund I Ltd.

In turn, the post-bankruptcy WCI will pay between $15 million and $25 million to Renco to cover pension obligations, “depending on the tax consequences of the reorganization,” according to a release issued by the noteholders late Wednesday.

“What the deal does is it splits the baby,” Thomas Moers Mayer, an attorney for the noteholders, said Friday. The reorganized WCI “pays a piece of it, Renco accepts the rest. The pension stays unchanged. There are no fights on paying the PBGC...and everybody goes home.”

It is not clear specifically how Rennert and his company will fund the pension plan to meet its obligations.

“By assuming WCI’s existing pension plan, Renco is fulfilling its commitment to preserve retiree benefits without interruption,” Rennert said in a written statement.

A spokesman for Renco declined further comment.

A WCI spokesman, Tim Roberts, said Friday that the steelmaker is encouraged by the judge’s comments on the agreement and expects her to take action on it in a hearing set for March 28.

The union, too, said it was encouraged.

“We’re pleased that none of our retirees lost their pensions. The way it works out is it that none of the union people will lose their pensions and we’re very pleased the company will be able to come out of bankruptcy,” said Mike Rubicz, president of United Steelworkers Local 1375, which represents WCI workers covered by the pension plan.