Troubled LTV Corporation (Cleveland, Ohio) and 48 of its wholly owned subsidiaries filed for Chapter 11 bankruptcy law protection today, following through with threats made over the course of the past several days.

In its bankruptcy petition, LTV cited a weakening U.S. economy and damage to the company by the USITC's inaction in enforcing trade laws.

While LTV blames unfair foreign competition and a softening market for its problems, some analysts point to more obvious and immediate problems common to many troubled companies: high costs, inefficient operations and interest expense of its high long-term debt.

LTV, the United States' fourth-largest steelmaker, has been losing money for at least the last 18 months. In 3Q2000, the company lost USD $27 on each ton of steel it produced, adding to losses for each ton produced since 3Q1998.

About a year ago, LTV's then-CEO, Peter Kelly, spent USD $650 million, in additional debt, to acquire Copperweld, the largest maker of steel tubing in the U.S. That additional debt service has been difficult for LTV to handle at a time when the market is softening and there is worldwide overcapacity. Kelly resigned last month and was replaced by board member William Bricker.

Despite innovative financing arrangements, LTV's downward spiral has continued, and recent months have seen its cash position fall to where it cannot continue operating. The company has been trying to sell assets and withdraw from investment ventures, but the effects have not been significant.

This is the third bankruptcy in two months for the U.S. steel industry. On November 16, Wheeling-Pittsburgh Steel (Wheeling, West Virginia) filed for Chapter 11 protection; it continues to operate. On December 19, Northwestern Steel and Wire (Sterling, Illinois) filed for Chapter 11; it continues to operate. In November, Gulf States Steel (Gadesden, Alabama) fell into Chapter 7 bankruptcy from Chapter 11 after failing to attract financing or a buyer.

Chapter 11 bankruptcy gives a company protection from creditors while it files a financial reorganization plan. It also puts the company under supervision of a bankruptcy court judge. Chapter 7 bankruptcy is a liquidation of assets.

LTV's petition also indicated that, without proper financing in place immediately, the company would have to shutter all of its plants, lay off all of its 18,000 employees and liquidate assets.

The company's actions have been controversial in recent days as it faced the bankruptcy filing and finding no success convincing its lenders to extend more credit. LTV went so far as to publicly beg Chase Manhattan to extend an additional $225 million loan on top of its existing debt, estimated at $600 million. By this week, LTV did not have enough cash on hand to continue operations.

LTV's Chairman and CEO William Bricker sent a letter to 75 Ohio local, state and federal politicians, pleading for them to call Chase Manhattan Corp. or face the loss of 18,000 jobs. In his letter, he said, "LTV cannot reorganize without an additional $225 million of borrowing under our existing Chase Manhattan loan facilities."

Chase led a $650 million securitization arrangement which involved at least 20 other lenders. To provide LTV with cash flow, the consortium had purchased receivables and inventory from LTV, then held it all in a special corporation. Apparently, however, that arrangement still did not provide LTV with enough operating capital. The company approached Chase Manhattan again recently to explore other financing avenues. The unique receivables/inventory purchase corporation terminates if LTV files for bankruptcy, so the company is asking for an extension to the agreement and an additional $225 million on top of that.

Banks have been reluctant to extend additional funding to steel companies due to the high risk. So in 1999, Congress passed the Emergency Steel Loan Guarantee Program to provide $1 billion in loans to U.S. steel companies. Under the program, the U.S. Government guarantees 85% of the loan principal. However, even with the assurances under that program, banks have still been reluctant to risk the 15% exposure in their loan portfolios.

LTV management also came under fire yesterday as the United Steelworkers of America said it had not been notified by LTV that the company was threatening to file for bankruptcy protection. The surprise notice angered many in the union, as they felt they had gone out of their way in recent years to work with management across the board to address problems and competitive issues.

Mr. Brickler went on to say that if reorganization financing can be arranged, the company can survive, restructure and succeed. But it also means that the U.S. Government must move aggressively against unfair trade practices in the steel industry.

"We ask only that our government do its job by enforcing the law and we'll do ours by making the changes needed to succeed in the new steel market. LTV and its employees across the nation have been betrayed by the government's reluctance to take action against the dumping of unfairly priced steel in the U.S. market by foreign competitors. How many more U.S. steel companies must be driven into bankruptcy before the government acts?" said Brickler.

Another drain on the company's finances are a variety of generous company-paid insurance and pension programs for retirees. It costs the company approximately USD $200 million per year to administer these programs for retirees.

"We are aware of our responsibility to our retirees and employees under these programs, but we simply do not have the cash to support them. The high fixed cost of these programs places LTV at a severe competitive disadvantage in the new global steel market. But we are confident that, given time, LTV can develop a permanent solution to these problems with the cooperation of the government, the steelworkers, and the financial community," he said. "The entire U.S. steel industry is at risk. Every integrated steel company carries an enormous burden for our country by providing healthcare and benefit programs for millions of Americans and their families. The impact of unfairly traded foreign steel threatens the continued existence of America's most basic and indispensable industries."

"Nearly 40% of our business has been lost and prices have fallen to the lowest levels in 20 years. Without enforcement of our trade laws by the administration, our only hope of survival was to reorganize LTV under Chapter 11," he said.