GST Steel: a “Profitable Failure” where “Every promise they made was broken.”
Romney and Bain made millions from a steel plant that went bankrupt after Bain dramatically increased the company’s debt. Workers lost their jobs and promised health and retirement benefits. Because Bain underfunded the company’s pension fund, a federal agency was needed for a $44 million bail out.
In 1993, Romney’s Bain Capital purchased a steel company and renamed it GS Technologies. To gain control of the company, Bain put up $8 million and quickly had the company take on new debt in order to distribute dividends back to Bain and cover new expenses – helping Bain earn back part of its initial investment.
In 1995, Romney’s Bain had GS acquire another firm, adding over a hundred million in new debt. By then, Bain had forced the company to hold $378 million in debt, which was ten times the annual income of the company and “the company was not on a sustainable course.”
At the same time, Romney’s firm was ordering changes that undermined safety and productivity at the company and installing people who knew little about the steel industry. A worker remarked, “When Romney and Bain came in, it was painfully obvious that they didn’t have a clue about anything to do with a steel mill.”
From 1997 to 1999, losses at the company increased by 300% and it was clear the company could not survive.
By the time the company legally filed for bankruptcy, Romney and his firm had made at least $9 million in profit. Former company officials said the mill, which had been operating since 1888, could have dealt better with market fluctuations if Bain had not forced the company to take on unsustainable debt. A finance professor remarked that using debt to pay large dividends to Bain left the company less prepared for a downturn.
Because Romney’s firm had forced the company to take on hundreds of millions in debt to pay themselves and finance acquisitions, ultimately leading it towards bankruptcy, “GS said it was shedding the guarantees it had promised its workers in the event of a plant closure - the severance pay, health insurance, life insurance and pension supplements that had been negotiated during the 1997 strike.”
Additionally, “records show that the mill's Bain-backed management was confronted several times about the fund's shortfall, which, in the end, required an infusion of funds from the federal Pension Benefits Guarantee Corp.” A federal government agency had to spend $44 million to bail out the pension plan that had been underfunded by Bain.
Reuters called GS one of Bain’s “profitable failures” and a former worker who saw the demise of the plant firsthand said, “Every promise they made was broken. Every promise. Except the fact that they did make a lot of money off of it. They kept that one.”
READ MORE: Reuters: “Special report: Romney's steel skeleton in the Bain closet,” 1/6/12
READ MORE: Bloomberg News, “Romney as Job Creator Clashes with Bain Record of Job Cuts,” 7/20/11
READ MORE: New York Post: “Romney's past is more a working class zero,” 2/19/11
READ MORE: Myrtle Beach Sun News, “Romney’s Bain Capital made millions off Georgetown Steel as mill morale, finances suffered,” 1/13/12
Even With the Company Bankrupted, Bain Received A $12 Million Return On Its $8 Million Investment In GST Steel, Along With Over $4.5 Million In Consulting Fees. According to Reuters, “Less than a decade later, the mill was padlocked and some 750 people lost their jobs. Workers were denied the severance pay and health insurance they'd been promised, and their pension benefits were cut by as much as $400 a month. What's more, a federal government insurance agency had to pony up $44 million to bail out the company's underfunded pension plan. Nevertheless, Bain profited on the deal, receiving $12 million on its $8 million initial investment and at least $4.5 million in consulting fees.” Prospectus documents Bain’s total profit exceeded $9.3 million. READ MORE: Reuters, 1/6/12 and Prospectus
After Closing The Plant, The Company Went Back On Its Promise To Offer Health Insurance, Severance Pay, And Life Insurance. According to Reuters, “GS Industries declared bankruptcy on February 7, 2001, and said it would shut down the Kansas City plant, eliminating 750 jobs. In a press release, the company said the bankruptcy was triggered in part by ‘the critical need to restructure the company’s liabilities.’ Workers soon found out what that meant. In April, GS said it was shedding the guarantees it had promised its workers in the event of a plant closure - the severance pay, health insurance, life insurance and pension supplements that had been negotiated during the 1997 strike. Workers could buy health insurance through the company’s plan, but the company would no longer share its costs. For many who were struggling with asbestosis or other ailments contracted during their years of work, the cost was prohibitive.” READ MORE: Reuters, 1/6/12
Workers Called New Management Inexperienced, Undermined Capabilities to Compete ‘With Anyone in the World.’ According to Boston Globe, “Out-of-work steelworkers in Kansas City, for example, blame Romney and Bain Capital for decisions that led to last year’s bankruptcy of a steel mill that opened its doors in 1888. Bain bought the operation, GST Steel Co., in 1993. Workers said the new owners cleaned house and brought in an inexperienced management team. Dan Misel, who worked at GST Steel for 35 years, said Bain came in ‘like the bully on the block,’ assuming its managers knew how to run the operation better than anyone already in place. ‘They brought in people to manufacture steel who had no idea of how to do it,’ Misel said. ‘It was kind of sad to me. We had the facilities and capabilities of producing with anyone in the world.’” According to Bloomberg, “GS Industries Inc., a steel company in Charlotte, North Carolina, filed for bankruptcy in 2001 after workers said a chief executive hired under Bain made missteps, including installing managers who lacked industry expertise, former employees said.” READ MORE: Boston Globe, 10/24/02 and Bloomberg News, 7/20/11
Employees Who Lost Jobs “Still Hold Romney Responsible.” According to the New York Times, “GS Industries Inc., a steel company in Charlotte, North Carolina, filed for bankruptcy in 2001 after workers said a chief executive hired under Bain made missteps, including installing managers who lacked industry expertise, former employees said. Employees who lost jobs at Bain-controlled companies more than a decade ago say they still hold Romney responsible.” Read More: Bloomberg News, 7/20/11
Bain Ordered Changes that Undermined Safety and Actually Decreased Productivity. According to Reuters, “Paperwork proliferated. Cost-cutting efforts backfired. Managers skimped on purchases of everything from earplugs to spare motors and scaled back routine maintenance. Machines began to break down more often, and with parts no longer in stock a replacement could take days to arrive. Labor costs spiked as managers revamped work schedules with little understanding of how the plant actually operated. Linson says he picked up an entire shift of overtime each week because his managers didn't realize that a furnace needed a full eight hours to heat up to operating temperature.” Workers described more dangerous work as management that was not familiar with steel and ordered unsafe practices such as exceeding the weight limit of a crane by 50%. READ MORE: Reuters, 1/6/12
http://www.realromneyrecord.com/cases/gst-steel
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