Did Mitt Romney loot a Kansas City steel workers' pension fund and stick the U.S. Government with the bill? Signs point to "Yes." Romney sat as CEO of Bain Capital, the buyout company he founded and molded, during its run with GST Steel – from buying a controlling stake in the company in 1993 to watching its bankruptcy eight years later. When the smoke cleared, a sign of looting appeared – that of the bottom line:
- The U.S. government's Pension Benefits Guarantee Corporation: a $44M loss to cover base worker pensions.
- Steel workers: a $27M to $120M loss* on a reneged-upon plant closing contract clause.
- Bain Capital: a $16.5M gain in profit and fees.
Another sign of looting rises from Bain Capital's mode of operation: using other people's money and getting paid up front. To start with, if I read the numbers right, Bain got a sweet deal, putting in only 11% of the purchase price ($8M out of the $75M) of the steel company and getting the controlling interest. Just a year later, GST issued $125M in bonds, and paid Bain a $36M dividend. A third sign of looting comes from the fact that the Bain-backed GST management was warned several times that the pension was underfunded, but nothing was apparently done to correct this sorry state. And in the end, the U.S. government pension insurance agency covered the ($44M) shortfall. As a final sign of pension looting, take the the low regard that Bain Capital seems to hold for pension contracts. GST's labor contract called for medical insurance, severance pay and a supplemental pension to cushion the workers' fall, in case the plant folded. But at bankruptcy time, management was able to brush off that contract clause. Neither would the the government pension insurance agency cover the supplemental pension, so the workers took the full ($27 to $120M) hit on that one. Another example of a Bain-managed company breaking a pension contract occurred in 1999 at Dade Behring, a medical diagnostics company. Management converted the pensions to cheaper, less beneficial, benefits, saving itself 10 to 40 million. Bain Capital used those savings to buff-up financial projections, which it used to borrow $421M, from which it, along with its investment partner Goldman Sachs and top Dade managers, took $365M in dividends. Carrying heavy debt, Dade went bankrupt three years later. These signs all point to looting. But in trying to answer our question, others arise:
- How were GST Steel and its owners able to renege on the plant closing contract clause?
- How did the GST workers' pension fund become underfunded?
- Who warned GST management that the pension fund was underfunded, and why was no corrective action taken?
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