Mellon Quits as Trustee of 2 Sharon Steel Bond Issues
Mellon Bank said Tuesday that it has resigned as trustee of two bond issues of Sharon Steel because of a possible conflict of interest.
Mellon said the possible conflict could arise from Sharon Steel’s recent disclosure that it would not be able to pay about $27 million in interest due on both sets of bonds.
Sharon Steel already missed the interest payment due March 1 on one bond issue, $426 million of 13.5% sinking-fund debentures due in 2000. And the steelmaker has said it does not intend to make the interest payment due April 15 on the other bond issue, $60 million of 14.25% subordinated sinking-fund debentures due in 1999.
As trustee, Mellon Bank acts as a representative for the bondholders and sees to it that interest payments are made to the holders on schedule.
Since Sharon Steel has already defaulted on the one bond issue’s interest payments, holders of those bonds could seek accelerated or full payment of their loans, with Mellon Bank acting on their behalf.
In Awkward Position
However, if Sharon Steel also defaults as expected on the second bond issue, Mellon Bank could be placed in a similar position of trying to carry out the desires of those bondholders. The question then might arise as to whose interests the bank was most representing.
“In light of the interest-payment default by Sharon on its 13.5% debentures last March 1, some of the actions that a trustee might take on behalf of the holders of those debentures could adversely affect the holders of the 14.25% debentures,” Mellon Bank said.
“Although we do not have a conflict of interest under the terms of either indenture, there is a possibility of such a conflict arising,” the bank said. An indenture is the agreement that covers the conditions under which bonds are issued and that empowers the trustee to act on behalf of the bondholders.
Awaits Successor
Mellon Bank said its resignation as trustee would become effective when a successor agrees to takes its place.
The interest-payment problems at Sharon Steel are one of several trouble spots in the financial empire of Victor Posner, the Miami Beach financier who is chairman and chief executive of Sharon Steel.
Last month, Evans Products, a building-materials concern that is 43% owned by Sharon Steel, filed for protection from creditors’ lawsuits under Chapter 11 of the U.S. Bankruptcy Code. Evans is continuing to operate while working out a plan to pay its bills.
Another Posner-controlled company, NVF, which owns 86% of Sharon Steel, has said it expects to report a net loss for 1984 of about $146.5 million.
Sharon Steel’s stock closed on the American Stock Exchange at 75 cents a share, down 12.5 cents. On the New York Stock Exchange, NVF slipped to 81.25 cents a share, down 6.25 cents, and the stock of Mellon’s parent, Mellon National, was off 25 cents at $48.50 a share.
