Debt-Laden LTV Corp. Goes Into Bankruptcy : 2nd-Largest U.S. Steel Firm, Hard Hit by Slumps in That Industry and Oil, Seeks Chapter 11 Help

NEW YORK — LTV Corp., parent of the nation’s second-largest steelmaker, filed for protection from creditors Thursday under Chapter 11 of the U.S. Bankruptcy Code, saying it was crippled by severe slumps in the steel and oil businesses.

The company said that both businesses, already stagnating, had unexpectedly and sharply collapsed in the last few weeks. At the same time, LTV’s suppliers began to withdraw credit, it was unable to arrange short-term loans and fell short in an attempt to refinance some of its costly long-term debt.

In all, LTV said, it was “unable to meet its anticipated cash requirements,” which include debt interest and principal payments of about $1.7 billion over the next three years and $375 million annually in pension and retiree-benefit costs. The Dallas-based company has 58,000 employees.

Stock Down to $2.125

In trading Thursday on the New York Stock Exchange, most of it occurring after the company announced its bankruptcy filing, LTV stock closed at $2.125, down $2.25.

LTV has long been considered financially the weakest of the nation’s major steel companies, in part because it carries the most debt, which places a particularly heavy drain on company revenues. Since 1981, its last profitable year, LTV has lost $1.4 billion.

In that period, the entire steel industry has been mired in a deep slump, with losses averaging $14 a ton for steel manufactured in the first three months of this year. The industry has been unprofitable for five straight years. Production by domestic steelmakers declined to 87.3 million tons last year from 136 million in 1979.

Adding to the problems of LTV is its involvement in the oil field service industry, a business that is hit hardest by oil slumps and recovers the slowest among all parts of the oil industry.

In 1981, the last year of normal prosperity in the domestic oil business, LTV got nearly a third of its revenues from oil field supplies and sold 21% of its steel to domestic drilling-rig builders. Last year, the supply business contributed only 7% of revenues and rig builders were buying less than 5% of LTV’s steel.

Both figures are assumed to be even lower today, because the number of working domestic drilling rigs has fallen to fewer than 600 in recent weeks from 1,900 a year ago. “This is the most difficult environment in post-war history,” said John Lichtblau, president of the Petroleum Industry Research Foundation, a trade organization.

LTV’s only profitable unit is its aerospace and defense business, which made $164 million in pretax profits last year on government contracts, including work on the B-1 and stealth bombers and on the “Star Wars” defense project. That money was more than offset by losses in other parts of the company, and LTV as a whole posted a 1985 loss of $723.9 million. In the first three months of this year, the company lost $109.1 million, compared with a loss of $154.6 million in the same period of 1985.

To Continue Operating

In a statement issued Thursday, Raymond A. Hay, LTV’s chairman and chief executive, said the company will continue operating while it reorganizes its finances under Chapter 11 protection from creditors.

“We are open for business today, tomorrow and thereafter and expect to be able to meet all commitments to customers,” he said. “Our action today represents a hard, practical decision that we believe is in the best long-range interest of the company.”

The company moved quickly to protect its defense contracts. Executives met twice Thursday with Defense Department officials to assure them that LTV’s contracts will be fulfilled. In addition, the company asked Bankruptcy Judge Burton Lifland in New York to allow it to make payments to suppliers on aerospace and defense contracts that might otherwise be forbidden under bankruptcy. Lifland scheduled a hearing on the matter for Thursday.

Some form of bankruptcy filing by LTV had been expected by financial observers for more than a year, with many conjecturing that the corporation would place LTV Steel under bankruptcy protection while trying to preserve the aerospace and defense unit as a working company. In the end, LTV and all 65 of its subsidiaries filed for Chapter 11 protection.

“Upon close examination, we found that, in order to protect the whole company, we had to put the whole company under Chapter 11 protection,” Senior Vice President Julian Scheer said.

Under Chapter 11, a company is permitted to suspend most payments to creditors while it reorganizes its debt under the supervision of a federal bankruptcy judge.

Colt Biggest Creditor

LTV said its biggest creditor is Colt Industries, which is owed more than $31 million, mostly as payment for a steel plant Colt sold it in 1982.

As recently as March, the United Steelworkers Union said its own audit of the company had found that the steel division faced bankruptcy unless serious cost-cutting measures were implemented.

About a month later, the company’s more than 20,000 unionized workers accepted a contract designed to cut labor costs by more than 10% in return for employee stock ownership and profit-sharing plans.

Still, LTV’s filing Thursday appeared to catch lenders and union leaders by surprise. Lynn Williams, president of the United Steelworkers of America, said the union would take court action to protect its employees. He said the union has 30,000 members working or on layoff at 24 LTV sites, plus 61,000 retired workers getting pension benefits.

One commercial banker who asked to remain unidentified said that, although the possibility of a bankruptcy filing has been obvious, “it’s fair to say there was no specific warning of this to the banks.”

Acquired Steel Firms

LTV can trace its roots back to one of the pioneer financial wizards of the 1960s, James Ling, who built the company into a conglomerate that at one time or another included Wilson Sporting Goods and Braniff Airways. Between 1968 and 1974, under Ling and his successor as chairman, Paul Thayer, LTV acquired all of Jones & Laughlin Steel Co. And Thayer acquired Lykes Corp., another steelmaker.

In 1984, in a decision frequently questioned in retrospect, LTV bought Republic Steel. The purchase, designed to give the company the economies of scale that might turn its steel business profitable, initially increased the company’s losses to $399 million in 1984 from $239 million in 1983 and contributed to the $723.9-million loss of last year. The merger made LTV the nation’s second-largest steelmaker after USS, the unit of USX Corp., until recently known as U.S. Steel.

“In hindsight, you’d have to say the Republic purchase added to their problems,” said Richard McClow, a steel analyst at the Chicago investment firm of Duff & Phelps, “but I don’t think anyone foresaw how bad demand for steel would slip in the next two years.”

Ling’s habit of going heavily into debt to finance acquisitions remains a burdensome legacy. LTV is today the most indebted of the major steel companies, with long-term debt of $2.6 billion, or 74% of total net worth. About $300 million of that dates to the Ling era, which ended in 1970.

Stretching Out Debt

In 1985 and again in May, LTV tried to stretch out its debt burden by exchanging some of the old Ling bonds for notes and common stock. The first offer was successful, company spokesman say, allowing LTV to sharply cut its annual interest payments. By the time of the second offer, however, the company’s financial condition had sharply deteriorated and fewer than half of the affected bondholders accepted the offer. In early June, the credit-rating agency of Standard & Poor’s downgraded the rating on LTV debt.

Meanwhile, company executives say, the steel business was deteriorating, with orders and prices dropping. LTV’s court filing says that, with orders drying up, the accounts receivable it was using as collateral for crucial short-term borrowings shrank.

The company faced a Sept. 15 pension fund payment of $250 million, said Scheer, as well as nearly $30 million a month in debt interest and principal.