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NOTE D.--McLouth Steel Corp.: At the time the company applied for the $10,500,000 loan, it was operating as a conversion mill. Suppliers of semifinished steel claimed that sales of such materials were made at a loss and notified McLouth of their intention to discontinue supplying semifinished steel one year ofter date of notice. In order to be assured of a supply of steel, the company decided to install its own facilities. The facilities to be added included: 4 60-ton electric furnaces, soaking pits, 1-10'' blooming mill, 1-42'' hot mill, buildings, and auxiliary facilities.
Originally, it was estimated that these additions would cost approximately $18.5 million; of this, $10.5 million was to be supplicd by the RFC loan. Later, it was found that the
NOTE E.-Pacific States Steel Corp.: To augment its existing facilities, this company applied for a loan to assist in financing the acquisition of 4 60-ton open hearth furnaces from
The company later revised its plans and, instead of the facilities originally contemplated, proceeded with the erection of a 26'' rolling mill and 2 130-ton open hearth furnaces.
RECONSTRUCTION FINANCE CORPORATION,
Washington 25, D. C., June 30, 1950. Hon. EMANUEL CELLER, Chairman, Committee on the Judiciary, Subcommittee on Study of Monopoly Power,
House of Representatives, Washington, D. C. DEAR MR. CELLER: The material accompanying this letter is in further response to your request of May 24, 1950, regarding the steel firms and facilities financed by the Reconstruction Finance Corporation.
Supplementing the tables sent to you with my letter of June 20, 1930, you will find attached tables III, IV, and V, consisting respectively of the detail on loans authorized to members of the iron and steel industry during the defense and war periods (table III), those authorized prior to July 1, 1940 (table IV), and a summary of the financial data on all loans authorized to members of that industry (table V).
Through June 9, 1950, this Corporation authorized 72 loans to 36 iron and steel companies; the total amount of these authorizations was $216,818,983. Of these, 15 authorizations for $8,347,000 were canceled before any disbursements were made, and partial cancelations totaling $1,667,267 were made in 9 otber authorizations, leaving a total of 57 authorizations for $206,834,716 on which funds were disbursed, or which may be disbursed at some future date.
In the period from the inception of the Reconstruction Finance Corporation on February 2, 1932, to July 1, 1940, there were authorized to members of the iron and steel industry 35 loans for $10,993,983. Many of these were made to firms which were in troubled financial circumstances by reason of the general business recession of the early thirties. Several of them were to concerns which lad closed their plants or were conducting limited operations under receivership pending reorganization. The loans authorized in the prewar period were mainly for the purpose of resuming production in the closed plants and to assist all of the borrowers to regain profitable operations: less than 20 percent of the loan proceeds were earmarked for additional facilities or improvements to existing plants.
Following the gradual recovery from the depression, and about at the time of the inception of the defense program, the steel industry in general was oper. ating on a profitable basis. However, in financing some of the defense and wartime expansion projects, a few companies turned to this Corporation for loan funds. From July 1, 1940, through December 31, 1944, there were 20 loan authorizations totaling $130,815,000 made to steel concerns; among these were the eight Kaiser Co. loans amounting to $111,805,000.
As the defense program progressed, the need for more and more steel-making facilities became apparent and it was found that the projects contemplated by the agencies preceding the War Production Board were either beyond the ability of the industry to finance from private sources, or the industry was reluctant to proceed with them because of doubts about their economic operation during peacetime. In consequence, it became apparent that to have the needed facilities they must either be constructed by the Government or some limitation placed on the risk undertaken by companies erecting facilities with their own funds. The latter was accomplished through the certificates of necessity provided by section 124 of the Internal Revenue Code. This section provided accelerated amortization, for income tax purposes, for those privately financed facilities covered by the certificates. About half of all funds expended for steel facilities during the defense and war periods represented the cost of Government-owned facilities; the balance was expended by the steel industry and was largely covered by certificates of necessity.
In connection with the financing of wartime facilities, the contribution made by the Defense Plant Corporation—a former subsidiary of RFC-is well known. Included in the list of DPC facilities were some 230 projects relating to the
steel industry. The principal additions to the Nation's steel-making capacity authorized in these projects were as follows:
ity (tons) Coal
6, 616, 000 Iron ore and concentrates.
9, 766, 120 Sintered concentrates
7, 828, 500 Pig iron.
10, 003, 500 Open hearth ingots--
5, 200, 613 Electric ingots.--
1, 271, 240 Rolling mill products..
5, 915, 217 In addition to those listed, facilities also were provided for the production of ferromanganese, tubing, malleable and gray iron castings, steel castings and forgings, etc. Approximately a billion dollars was expended by DPC in the erection of steel facilities. All of the DPC projects were under the sponsorship of some Government agency directly concerned with the prosecution of the war. For details on the facilities included, your attention is invited to reports of the war agencies, especially “Steel Expansion for War,” prepared by W. A. Hauck, of the War Production Board's Steel Division. The postwar disposition of DPC's steel facilities has been noted in reports of the Surplus Property Board, the Surplus Property Administration, and War Assets Administration (now General Services Administration).
From about the time of the war's close until June 9, 1950, the Reconstruction Finance Corporation authorized 17 loans for $75,040,000 to steel companies. In most instances, these loans were made for the purpose of assisting in the conversion of wartime facilities to civilian-type production. More than 80 percent of the loan funds authorized to steel concerns since January 1, 1945, have been designated for capital expenditures.
While this Corporation has no restrictions placed on the size of concerns to which it may lend funds, you will note that only two loans were authorized to companies which might be considered as being among the major steel producers. Both of these loans were made under wartime directives to subsidiaries of Armco Steel Corp. (Sheffield Steel Corp. of Texas and Rustless Mining Corp.).
As far as funds for future expansion of the industry are concerned, it would seem that the leading producers should have little difficulty in obtaining any outside capital they may require from private lenders or from the sale of securities. This may not hold true, however, for smaller companies, and if any future requests for loan funds are made to RFC by steel concerns, it is most likely that they will come from the smaller members of the industry whose prestige is insufficient to assure a public market for their securities, or whose immediate earning prospects may make it necessary for them to borrow funds for longer periods of time than private lenders are willing to commit.
In a general sense, all loans made by RFC to business enterprises result in the strengthening or preserving of the borrowers' financial and competitive positions.
I trust that this letter, together with the tables submitted, will supply you with the information you desired and will prove helpful to your committee. With kind regards. Sincerely,
HARLEY Hise, Chairman.
TABLE III.—Detail of loan authorizations to companies inthe iron and steel industry, July 1, 1940, to Dec. 31, 1944
Name and address of company
Eastern Stainless Steel Corp., Stainless-steel sheets.
$1,500,000 September 1944.
Kaiser Co., Inc., Oakland, Calif.
(now Kaiser Steel Corp.).
Coke, coal chemicals, pig
48, 700,000 March 1942
700.000 October 1942
100, 000 August 1940. 200,000 November 1940.
Kilby Steel Co., Inc., Anniston, Open-hearth and electric-
furnace ingots, rolling-mill
250,000 October 1942.
Oregon Steel Mills, Portland,
Oreg. (formerly Oregon Elec-
700, 000 April 1942
700,000 May 1942.
· Pacific States Steel Corp., Niles, Forging ingots, merchant
bars and shapes, and small
600,000 June 1944.
400,000 April 1942
Rustless Mining Co., Baltimore,
Md. (subsidiary of Rustless Iron Steel Corp., ,
Dow merged with Armco
To assist in the financing of a new Direct loan; repaid in full in July 1943 steel plant. See note B.
from proceeds of a privately-sold
bond issue. For working capital..
Direct loan; no disbursements were
requested, and the authorization was
cancelled in May 1943. To refund unrepaid balance of loan Direct loan; authorization was reauthorized in July 1935.
scinded in June 1941 and maturity of
first loan extended.
was canceled in December 1941; dis-
NOTE A.-Kaiser Co., Inc. (now Kaiser Steel Corp.): The Kaiser steel works at Fontana
The principal facilities included in the Kaiser Steel Corp.'s plant are described as
750,000 29-inch structural mill.
products, and wire. Superior Steel Products Co., Cold drawn products.
capacity for 547,000 tons), six two-hold soaking pits, six preheating pits, five continuou
Also included in the facilities were iron-ore properties at Kelso, Calif., (annual capacity
NOTE B.-Sheffield Steel Corp. of Texas: The original plan of American Rolling Mill
Later, due to uncertainty about the supply of scrap, the company proposed to add coke
These facilities were subsequently purchased from the Government.