Herky Jerk

Doe Run's owner has done this before -- and that has regulators braced for trouble

Feb 20, 2002 at 4:00 am
Never sat across the bargaining table from him. Never met him, in fact. But union boss Joe Angleton has a high opinion of the man who controls Lodestar Energy Inc., a troubled Kentucky coal company.

"Ira Rennert's a financial genius," says Angleton, president of District 12 of the United Mine Workers of America.

See, Rennert operates at the rarefied level of high finance that can flummox an average Joe, even a union leader who has mastered the arcane language of contracts, cost-of-living escalators and pension multipliers.

A New York financier who's collected distressed companies at fire-sale prices since the mid-1970s, Rennert snapped up Lodestar five years ago. At the time, the Lexington, Ky.-based company was known as Costain Coal Inc. and owned by a British firm. Rennert's holding company, the Renco Group Inc., paid about $32.5 million -- $22.5 million of it in cash, according to the trade press -- for the company, which Angleton says was teetering on the brink of bankruptcy. A year after the sale, Lodestar borrowed $150 million in high-interest bonds.

Filings with the U.S. Securities and Exchange Commission report that the money was used, in part, to pay cash dividends totaling $27.8 million to shareholders. There was only one shareholder in Lodestar -- Ira Rennert -- and with the dividend payout and the management fees Renco Group charged, he just about made back what he paid for the company.

"Ira Rennert's a financial genius."

Fast-forward to November 2000:

Lodestar, blaming the depressed price of coal, fails to make interest payments on the bonds. The company wants to renegotiate with bondholders and win more favorable terms. But bondholders are angry. They balk. Were it not for the dividends Rennert took, maybe Lodestar wouldn't be in trouble, one investor tells Coal Outlook, an industry publication. In March 2001, bondholders force Lodestar into bankruptcy.

End of story? Hardly.

Lodestar turns the involuntary bankruptcy into a voluntary reorganization -- and, with a federal judge's approval, the company wiggles out of unfavorable contracts with power companies, including the government-owned Tennessee Valley Authority. Angleton, who represents workers at the company's Baker deep mine in western Kentucky, says the move will allow a leaner, meaner Lodestar to emerge from bankruptcy -- its unprofitable operations divested, its money-losing contracts replaced.

And Ira Rennert will be still calling the shots.

"Ira Rennert's a financial genius."

If the Lodestar tale sounds familiar, it may be because two other Ira Rennert-controlled companies last month warned that they also expected to default on bonds.

One is Rennert's Renco Steel Holdings Inc., an Ohio holding company: It said it didn't have enough cash to make debt payments that came due on Feb. 1.

The other Rennert company is his largest -- and one that's dominated local headlines. St. Louis-based Doe Run Resources Corp., in the middle of a multimillion-dollar environmental cleanup in Herculaneum, said on Jan. 30 that it was trying to restructure $305 million in bond debt and was negotiating with bondholders.

In an announcement eerily reminiscent of Lodestar's warning, Doe Run blamed the depressed price of lead, its main product, for its troubles. The company says it's not sure whether it'll be able to make interest payments on the debt that comes due on March 15.

Rennert's Renco Group bought Doe Run from California-based Fluor Corp. in 1994. The Herculaneum smelter was in the midst of a strike, and the company's environmental liabilities -- from discontinued mines throughout the Missouri Lead Belt and from the century-old smelter -- were piling up.

After the sale, the replacement workers at the smelter voted to throw out the Teamsters, a move that ended the labor controversy but left deep resentment in the company town, just south of St. Louis. That resentment would come back to bite the company: Residents grew distrustful, and ex-employees snitched to regulators about company practices [Klose, "Heavy-Metal Racket," Dec. 26, 2001].

But Rennert was undaunted and moved quickly to cinch Doe Run's dominant position in the lead business. Borrowing heavily, Doe Run acquired a major Peruvian lead business and also bought Asarco Inc.'s Missouri lead mines and smelter. The moves left Doe Run groaning with debt just as the price of lead headed south.

Critics say Doe Run moved faster on its expansion plans than on its response to environmental problems in Herculaneum. They also say some changes in company operations actually made things worse. One example: The decision to rely exclusively on trucks to ship in lead concentrate spilled heavy-metal dust on Herky's streets and yards.

And the company has never met federal air-emission standards. As a result, part of this river town of 2,800 is contaminated. Recent blood tests in Herky show nearly that one in four children under the age of 6 has a dangerously high lead level. More than 500 residential yards need to be replaced. And some residents are being offered temporary relocation so lead dust can be removed from their homes.

How much the cleanup will cost is unclear. According to the consent order finalized in May 2001, getting air emissions in compliance by the July 2002 deadline could cost between $8 million and $11 million, says Dave Mosby, the Missouri Department of Natural Resources official assigned to the Herculaneum cleanup. Replacing yards -- at a cost of $10,000 to $15,000 each -- adds a minimum of $5 million. Other costs haven't been identified, including evaluation and stabilization of the hulking slag pile south of the smelter, Mosby says.

Although Doe Run officials haven't uttered the word "bankruptcy" yet, company officials are talking to regulators about their bleeding balance sheet -- an implied warning that regulators shouldn't press them too hard about paying for the cleanup.

How successful is such whining about the bottom line? Just last week, the company finally wrested approval from the U.S. Forest Service to conduct exploratory drilling for lead in Missouri's Mark Twain National Forest. Mosby concedes Doe Run's financial health "is a major consideration" for regulators.

"They haven't made bankruptcy noises, but they've talked to us about the serious state of their financial affairs," says Mosby. "I know EPA has done some tracking of the reality of their finances."

If Doe Run does wind up in bankruptcy court, regulators will have to scramble to identify the cost of the cleanup and get in line with the rest of the creditors, including hundreds of Herculaneum residents and former workers who are battling the company in court.

Already designated a Superfund site, the smelter has also been the subject of a recent push by Gov. Bob Holden and U.S. Rep. Dick Gephardt (D-3rd District) for a spot on the EPA's National Priorities List. This would allow federal regulators to tap a pool of federal money to clean up the Doe Run mess.

But the list of NPL projects already is long, and "the federal funds aren't in the best of shape, either," Mosby says.

Another Ira Rennert company is one of the reasons the feds may be hard-pressed.

Near Salt Lake City, in the shadow of the 2002 Winter Olympics, the world's third-largest magnesium-producing company has been fouling Utah's air for years. Magnesium Corporation of America, a.k.a. MagCorp, acquired by Rennert's Renco Metals Inc. in 1989, spews out enough chlorine to qualify as the nation's No. 1 emitter of toxic pollution.

In January 2001, the U.S. Department of Justice sued MagCorp, Renco Metals and Rennert, accusing them of illegally handling hazardous waste near the Great Salt Lake. The Justice Department also moved to add new defendants, including Rennert, to a lawsuit that accuses MagCorp of illegally taking minerals from federal land. In the petition, the U.S. alleged that because of "various financial transactions" among Rennert-controlled companies, MagCorp may have been stripped of sufficient assets to pay any legal judgments.

Sure enough, the company filed for bankruptcy protection in August.

The Justice Department's lawsuit came just four days before George W. Bush took office. Was it payback for annoying the Clinton White House? Just the year before, the publicity-shy Rennert emerged as the biggest of the big-money backers of New York Mayor Rudy Giuliani's Senate campaign. Rennert's Renco Group gave $100,000 to a Giuliani committee.

That got Democratic candidate Hillary Rodham Clinton's attention. She slammed Giuliani for taking money from "the biggest polluter in America." Health problems, not embarrassment, forced Giuliani out of the race Clinton eventually won.

A look at Federal Election Commission records shows that Rennert tilts toward Republicans: For example, he gave $25,000 to the National Republican Senatorial Committee last year. But he's also propped up key Democrats, including U.S. Sen. Joe Lieberman (D-Conn.), Al Gore's running mate in 2000. Rennert's political giving crosses the Atlantic -- the Jerusalem Post describes the 67-year-old Brooklyn native as a major financial backer of right-wing Israeli politicians, including former Likud prime minister Benjamin Netanyahu, and Orthodox Jewish causes.

Since Rennert began making real-estate deals in the 1960s, he has amassed more than a dozen companies. Today, combined revenues for his businesses easily exceed $2.2 billion -- more than one-third from Doe Run. In addition to MagCorp, Doe Run and Lodestar, Rennert's miniempire includes WCI Steel Inc. of Warren, Ohio; AM General Corp. of South Bend, Ind.; and UNARCO Material Handling of Springfield, Tenn. Thanks to AM General, which makes the all-terrain Hummer and Humvee vehicles for military and civilian use, and UNARCO, which makes storage systems, Rennert's Renco Group ranks among the nation's top 50 defense contractors.

Rennert, whose New York office didn't return our calls, built his empire quietly -- very quietly, if you happen to be a reader of the Post-Dispatch, which has named the man who controls Doe Run just twice in the past two years.

Not until the late 1990s did the billionaire blow in from obscurity. And the glare of negative publicity didn't come from his ownership of troubled and troublesome businesses. Instead, Rennert and his wife, Ingeborg, hit the headlines after their plans to build a 110,000-square-foot residence in the Hamptons on New York's Long Island became public.

If completed according to plans, the residence will have 25 bedrooms, 39 bathrooms and a garage for more than 100 vehicles. That would make it the largest private home in the United States -- more than twice the size of software billionaire Bill Gates' compound in Medina, Wash.

Rennert's residence, cracks a lawyer who is suing Doe Run, will be big enough to shelter one-fourth of Herculaneum's residents:

"But they wouldn't like living on Long Island."