Under terms disclosed in court documents last night, the new buyer of Sparrows Point can tear up the existing United Steelworkers labor contract and cease paying wages and benefits to the existing 1,600-member workforce.

The “successorship clause” of the current contract between the USW and RG Steel will have little impact once Sparrows Point is sold because the new owners can terminate RG Steel employees at their discretion.

This morning Judge Kevin Carey is expected to approve the sale of the mill during a hearing in U.S. Bankruptcy Court in Wilmington, Delaware.

Whether the new owners plan to exercise their legal rights was not disclosed in last night’s Asset Purchase Agreement. Nor have the purchasers made any public statements of their intentions since they won the August 7 bankruptcy auction.

Steelworkers Local 9477 President Joe Rosel said yesterday that he plans to “reach out” to the new owners after the sale is completed and pursue his plan to find the “right owner for Sparrows Point” that will return the mill to active production and recall its idled workforce.

That might be difficult given the terms of the purchase agreement between RG Steel and the new buyers.

“All rights, obligations and interests in or relating to any labor agreements, collective bargaining agreements, shop agreements, work rules or practices” are null and void after the property is sold to Hilco Industrial, a Chicago liquidator, and Environmental Liability Transfer (ELT), a St. Louis brownfield developer, according to the purchase agreement.

In addition, the new buyers “shall have no obligation to pay wages, bonuses, severance pay, benefits or any other payments to employees of the debtors [RG Steel],” the document says.

Today’s sale hearing before Judge Carey will cap an expedited bankruptcy proceeding that began when Sparrows Point’s parent, RG Steel, filed for Chapter 11 protection last May 31.

No Provision to Preserve “Core Assets”

The asset purchase document also does not require Hilco and ETL to preserve the core assets of the steel mill for six months.

Last week, mill manager Glenn Mikaloff wrote in an internal memo saying that Hilco did intend to preserve the plant’s assets for six months, reportedly in hopes of reselling the mill to an operating steel company.

Hilco and ETL did agree to assume the existing environmental agreements with the Environmental Protection Agency (EPA) and Maryland Department of the Environment, including a 1997 consent decree to clean up the heavily-polluted property.

In a separate document, James Tumulty, RG Steel’s investment banker, disclosed that six companies were involved in last week’s auction of Sparrows Point’s assets.

In addition to Hilco-ELT, they consisted of three demolition companies, one steel distributor and one unknown entity.

Brazilian steelmaker CSN – widely reported as interested in buying the mill – did not participate in the auction.

The bidders were Niagara Worldwide LLC (demolition), C.J. Betters Enterprises (demolition and property redevelopment), D.H. Griffin and Gibb International (demolition), SB International Steel (steel distributor), and Georgia Financial IV LLC, an entity formed in Delaware last May.

Tumulty Denies “Any Collusion or Fraud”

Tumulty denied in his affidavit that Cerberus Capital Management, which owns 24.5% of RG Steel and advanced more than $200 million to the steel company, has any involvement or interests in the new owners of Sparrows Point.

“I an not aware of any collusion or any fraud or attempt by the purchasers to assert any unfair advantage over any other potential bidder,” Tumulty stated.

“Also, to the best of my knowledge, none of the purchasers is an affiliate of any of the debtors’ lenders, including without limitation, any affiliate of Cerberus Business Finance LLC, the agency for the debtor’s second lien lenders.

“As a result, I believe that the purchasers are good-faith purchasers and the auction process was open and fair.”

Last Friday, The Brew cited public records and press accounts that indicated that Cerberus owned a stake in Hilco’s parent company, Hilco Trading.

The article noted the existence of Cerberus Hilco Investments LLC, whose business address is the same as the New York offices of Cerberus Capital Management.