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.”
