LTV Corp., parent of the second-largest U.S. steel manufacturer and a leading defense company, yesterday filed a bankruptcy petition seeking court protection from its creditors while it tries to stem its losses.
With sales of $8.1 billion and assets of $6.3 billion, LTV is one of the largest companies ever to file a Chapter 11 bankruptcy petition. The company, a casualty of the mounting tide of imported steel and the precipitous drop in energy prices, said it could no longer pay its debts and meet its payroll and other anticipated cash requirements.
If the petition is approved by a federal bankruptcy court judge, LTV would come under the court's supervision while it prepares a reorganization plan to submit to its creditors, retirees and shareholders for approval.
Raymond A. Hay, chairman of the Dallas conglomerate, said, "We are fully confident that we will emerge from Chapter 11 as a strong, viable company. Our action today represents a hard, practical decision that we believe is in the best long-range interest of the company."
Hay said that a reorganization plan would have to deal with the company's $1.7 billion in scheduled debt payments over the next three years and its $375 million in annual pension obligations for active and retired employes, one of the largest industrial pension groups in the country.
"There was a cash-flow crunch and a debt-service crunch and a pension-cost crunch and there was no relief in sight," said LTV Senior Vice President Julian Scheer.
Leaders of the United Steelworkers of America said they had been aware that the company was in precarious condition, but were surprised by the bankruptcy filing.
The union issued a statement by its president, Lynn Williams, who said: "This action by LTV Corp.. . . underscores the contention that our union has been making for the past few years: that only massive involvement by the Reagan administration will turn around the disastrous course" of domestic steel.
Hay met yesterday with Commerce Secretary Malcolm Baldrige and Treasury Secretary James A. Baker III. They offered only "sympathy," he said.
"We were under enormous pressure from creditors, banks and vendors who were starting to put the squeeze on," said Hay. Now, with the protection of Chapter 11, "We will take a little time to study our options," he added. LTV lawyers estimate the bankruptcy process could last 18 to 30 months.
"We have an opportunity to eliminate many of the warts in the system," said Hay, citing what he called excessive charges for coal, iron ore and utilities that have added to steel-making costs. LTV plans to remain in the steel business, but must reduce costs further, he said. "And if the market continues to shrink, we will have to continue to shrink," he said.
"We will do whatever it takes to solve the steel problem," in particular, said Scheer.
Anthony Rainaldi, chairman of the USWA bargaining committee with LTV, said that union officials met briefly with company officials yesterday to discuss the impact of the filing on union members. "We'll be doing all that is possible to protect the integrity of our negotiated labor agreement," which was ratified April 4, Rainaldi said.
Kathleen Utgoff, executive director of the Pension Benefit Guaranty Corp., said the LTV bankruptcy was of "great concern" to the PBGC. If LTV terminates its plan, which covers 80,000 active and retired workers, the PBGC would face its largest claim ever. The PBGC estimated that LTV's pension plan is underfunded by $1.5 billion, but Utgoff said that might understate the amount.
LTV officials will meet with Utgoff today to discuss the company's options. "We have no plans to dump the pensions on the PBGC," Scheer said. He said LTV expects to negotiate a settlement with the agency and with the steelworkers.
In recent years, LTV has invested heavily in modernizing its steel plants and has reduced steel-making costs by $750 million annually. This year, it negotiated a contract with the USWA that lowered its labor costs, bringing them in line with other major U.S. steel producers. But the continuing pressure of low-priced imports caused a $1 billion decline in revenue in the steel business over the past year, Scheer said.
For the first three months of 1986, LTV Steel had an operating loss of $60.1 million on sales of $1.17 billion. The loss for the parent company was $109.1 million in the first quarter.
From that vulnerable position, LTV's condition eroded sharply in recent weeks, the company said. Steel shipments dropped in the second quarter and the company saw no sign of stronger prices ahead. Accompanying that news was a steep decline in oil and natural gas drilling rig activity this year because of the collapse in petroleum prices, which undercut LTV's steel and energy businesses.
The company manufactures aircraft parts, missiles, vehicles and other products for the Defense Department. Its aerospace and defense division had sales last year of $2.3 billion.
The largest U.S. bankruptcy in terms of assets was filed by Baldwin-United Corp., a financial services company, whose assets totaled $9.38 billion when it failed in 1983. The Penn Central Railroad, which went bankrupt in 1970, had assets of $6.85 billion.
The effort to reorganize LTV under the bankruptcy act will mark a new chapter for a conglomerate that has gone through several metamorphoses. In 1968, LTV was a go-go company with profits from missiles and meatpacking. It borrowed $490 million that year to acquire Greatamerica Corp.'s holdings in Braniff Airways, National Car Rental and insurance and banking.
It entered the steel business by acquiring Jones & Laughlin Steel Corp. in 1969. In mid-1984, LTV bought Republic Steel Corp., after strained negotiations with the Justice Department over its objections to the merger on antitrust grounds.
The acquisition boosted LTV's steel shipments to record levels, solidifying its position as a major supplier of sheet metal to the automotive and appliance industries. Overall sales for all divisions reached $8.2 billion for 1985. But LTV's losses on each ton of steel shipped were among the heaviest in the industry, overwhelming a $164 million profit from defense and aerospace business. It suffered a $227 million operating loss in steel last year and overall losses of $723 million.
Despite a Reagan administration program intended to hold steel imports to 20 percent of the U.S. market, foreign steel accounts for 22 percent to 25 percent currently, holding prices down. "It is estimated that direct and indirect imports account for about 51 percent of total steel consumption" in the United States, Hay said. That left little hope for improvement in prices, Scheer added. Staff writers Nancy L. Ross and Warren Brown contributed to this report.