Who really bid for the giant Sparrows Point mill last week?

Even that basic information is obscure as the Sparrows Point case unfolds before the U.S. Bankruptcy Court in Delaware – and 2,000 now-unemployed steelworkers and managers await the fate of their jobs.

In internal memos obtained by The Brew, both the union president and general manager of Sparrows Point identified Hilco Industrial, a liquidating company, as the successful bidder at week last’s auction of the Baltimore County property.

Hilco’s $72 million bid – 1/13th the mill’s stated value of $1 billion – was accepted after no steel company came forward at the auction, and only one other offer (for $65 million) came from an obscure Pennsylvania property speculator named C.J. Betters.

This was not the expected result. About 18 companies, including three steel companies, had filed documentation and a 2% cash deposit to be part of the auction.

Days before the auction, RG Steel management was telling insiders that CSN, the Brazilian steelmaker, was eager to buy Sparrows Point and had big plans for relining the L blast furnace before reopening the mill for production.

No CSN – then, Apparently, no Hilco

But no CSN bid was made at last Tuesday’s auction – or at least no bid at a price deemed worthy by RG Steel’s management and owners, billionaire Ira Rennert and Wall Street private equity powerhouse Cerberus Capital Management.

What followed was even stranger.

In a filing late Friday, RG Steel’s law firm, Willkie Farr & Gallagher, identified three companies in Missouri – not Hilco – as the winning bidders. They bid the exact same purchase price of $72 million as Hilco.

The companies – Sparrows Point LLC, Environmental Liability Transfer Inc., and Commercial Development Co. – could all be traced to one Thomas E. Roberts, a property developer in St. Louis.

We could not reach Roberts on Friday, but The Baltimore Sun did, and he was quoted as saying that his group was doing a joint venture with Hilco at Sparrows Point, but could add nothing more.

Hilco Reappears

Hilco’s disappearance as the winning bidder took place just hours after we published a story that linked the liquidator to Cerberus Capital.

The link – Cerberus was a longstanding investor in Hilco’s parent company, Hilco Trading – raised questions about whether the auction conducted by Willkie Farr at their Manhattan law offices was an “arm’s length transaction” between RG Steel and Hilco.

Then came the return of Hilco.

In a filing placed on the court docket after the close of business on Friday, Willkie Farr disclosed that Hilco Industrial was, indeed, one of the successful bidders of Sparrows Point.

The filing further revealed that Hilco may be a “current client” of the law firm.

Lead lawyer Matthew A. Feldman said the law firm “represents [Hilco] in matters wholly unrelated to the debtors [RG Steel]” and thus “remains a ‘disinterested person’ within the meaning of section 101(14), as modified by section 1107(b) of title 11 of the United States Code.”

Feldman added that “to the best of my knowledge,” the law firm does not have any other connection “with the debtors, their creditors or any other parties in interest or their representative lawyers and accountants,” and thus should continue representing RG Steel in the proceeding.

The new document also revealed that Hilco did not bid for Sparrows Point under its own name, but through an entity called “HRE Sparrows LLC.”

A Brew search of corporate records found that this company had been incorporated in the state of Delaware on August 24 – the same day that Roberts’ “Sparrows Point LLC” had been incorporated in Missouri.

Plans Not Disclosed

What is missing from the record is what Hilco and the St. Louis property developer plan to do at Sparrows Point.

Nor has there been any disclosure of the financial arrangements of the joint venture. Perhaps Wednesday’s sales hearing scheduled before Bankruptcy Court Judge Kevin Carey will shed some light on these matters.

Worker Benefits Reportedly Will Continue

Perhaps the oddest aspect of last week’s Sparrows Point auction was that, according to an internal memo by Sparrows Point General Manager Glenn Mikaloff, Hilco pledged “not to destroy key steelmaking assets for 6 months while the unsecured creditors attempt to find an operator.”

The key unsecured creditor is the United Steelworkers Union, which on Friday was telling the staffs of Maryland Gov. Martin O’Malley and U.S. Congressman C.A. “Dutch” Ruppersberger that Hilco had agreed to keep the 1,600 union employees of Sparrows Point on health benefits and supplemental unemployment benefits for the next six months.

Why would Hilco agreed to such terms?

Gary C. Epstein, the company’s spokesman in Chicago, said his group would not make any comment.

One educated guess is that Hilco is a “placeholder” that will “flip” Sparrows Point to a legitimate steel company that will then sign a contract with the USW and resume production.

Stiffing the Bankers?

Why would that scenario make sense? Because it would help Rennert get out of the huge debt his company owes to his bankers.

The bankers, led by Wells Fargo and General Electric Capital, enabled Rennert to buy Sparrows Point and two Midwest mills for $1.2 billion in 2011. Rennert’s Renco Group put up only $114 million of its own money, according to court documents.

Now with Hilco’s low-ball bid, the bankers will only get a small fraction of the money owed them, especially after the fees for Willkie Farr and others are deducted from the purchase price.

Cerberus Capital, which forked out $220 million last winter to win a seat at RG Steel’s table as a 24.5% minority owner, also stands to gain if its apparent involvement with Hilco yields a big selling price for Sparrows Point.

That’s because, as a junior secured creditor of RG Steel, Cerberus couldn’t get back its investment until after the bankers were paid. But under a new entity cleansed of debt, Sparrows Point becomes that much more desirable for resale and profit.

Postponing Bad News Past November?

That’s one scenario.

Another possibility is much more bleak for the Baltimoreans who, directly and indirectly, owe their livelihood to the sprawling steel mill.

It is that Sparrows Point is a “lost cause” and will be closed . . . but not just now.

A six-month hiatus in the disposition of Sparrows Point – as well as RG Warren located in the presidential battleground state of Ohio – could keep the destruction of jobs and industrial assets out of the limelight in the upcoming November elections.

That wouldn’t help steelworkers hoping that their jobs will somehow re-materialize. But it would profit Democrat incumbents in Congress and the White House.