"Slow, complicated death"

I don't think anyone has gotten to the bottom of the Bayou Steel closure yet. Governor John Bel sounds very certain that the Trump tariffs are the main cause.  There might be some truth to that claim but we don't have the information we need to assess it thoroughly.  Early reports about the closure (and the Governor's comments) suggested that Bayou's business depended heavily on the availability of imported scrap metal.  But in days since, that assertion hasn't been satisfactorily flushed out.

That doesn't mean the tariff isn't a catalyst. But the scrap metal supply line might be an oversimplification of how.   We read here that steel producers have suffered under the tariff due to the resulting "uncertainty."

The imposition of section 232 tariffs in March 2018 -- 25% on most steel imports and 10% on aluminum -- was supposed to protect domestic producers from cheap imports from China and elsewhere, but the main effect on the market has been to raise the sense of uncertainty, which has been seen mostly in declining inventories by steel-trading middlemen who account for the bulk of the steel market.

Anyway, the mechanics of the tariff's role here are still not very well defined. That's particularly true in the case of Bayou Steel where the company's ownership is being deliberately coy about the closure in what looks like a strategy to avoid compensating workers for the suddenness of their job loss.  Why the Governor isn't being more aggressive on that front, we do not know.  One would think standing up for laid off workers would be a higher political priority than issuing disputable statements about the Trump tariffs. He may be on the right track with the latter course, but it's a much more confusing public fight to pick than just standing up for workers in crisis.

At least the Trump ogres, in their response to John Bel, actually identify the vulture capitalist private equity firm that has been picking the company apart this whole time.  Of course, they say it like that's a good thing.

Bayou Steel folded like a cheap tent under the weight of a leveraged buyout by Wall Street vultures picking the carcass of a highly inefficient and antiquated plant.

That's a Trump Administration spokesperson telling us basically that American jobs deserve to be zorched by Wall Street and the Governor hasn't said a word against that because he too believes all things must bow to the "efficiency" of the market.  If only we would get rid of Trump and his "D.C. style politics" we get back to the bi-partisan work of handing out huge state subsidies to heavy industry.  That's how the economy is supposed to work, right? John Bel seems to think so.  His opponents definitely think so too. Their only real beef with him is they would prefer to be the person handing out the favors themselves.

This guy also seems to think so.

Jeff Sands, an investor who specializes in rescuing midsized companies near collapse, said he had tried contacting Black Diamond officials last week, including Stephen Deckoff, the firm's co-founder and managing principal, as well as the lawyer handling the bankruptcy, Christopher Ward, of Polsinelli PC in Delaware, who said initially on Monday that he couldn't remember exchanging emails with Sands.

But even he isn't that optimistic.

Sands said that since the company is now in bankruptcy proceedings, he feels the prospect of keeping it going has dimmed.

"I’m cynical," he said. "It will likely just die a slow, complicated death.

"We’ll follow and bid but the odds of it happening quick enough to keep the customers, workforce and vendors is slim."

So that's cheerful. Even in the best case scenario Sands, or an investor like him, moves in to "rescue" Bayou Steel, probably through a regimen of job and benefit cuts plus a renewed package of state tax exemptions.  The alternative is slow, complicated death, though so, what would we prefer?

How unforseeable is unforseeable?

Nobody at Bayou Steel wants to say why 376 people had to lose their jobs all of a sudden. And we do mean, very very all of a sudden. 

Officials on Wednesday offered more details on the closure, which came seemingly out of the blue and surprised union officials who had been in contract negotiations with management up until last week.

David Delaneuville, the district representative for the United Steelworkers union, said his negotiations with Davis and Kristen Barney, Bayou Steel's human resources manager, had gone normally and they reached a three-year deal last Thursday to give workers a 4% pay hike in the first year and 3% in each of the subsequent two years.

Apparently, as far as plant management knew, there was plenty of room available to grant modest pay raises. But then, some "unforeseen business circumstances" happened.

(St. John the Baptist Parish President Natalie) Robottom said she is worried that the sudden notices of closure and bankruptcy and the wording of the letter sent to her mean the company is trying to skirt obligations to pay its workers.

"It is concerning, especially how their letter was written, that they may (have been) writing it in that manner so that they don't have to fulfill the obligation of following the (Worker Adjustment Retraining Notification) Act," she said, referring to passages in the letter that cited "unforeseen business circumstances and the inability to secure necessary capital," as well as a paragraph specifically saying the company did not acknowledge any obligations under the WARN Act.

Ordinarily the WARN act would require the company give at least a 60 day notice, otherwise they would be on the hook for back pay. One of the exceptions written into the law specifically uses the term "unforseeable business circumstances"

Unforeseeable business circumstances: When the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable at the time that 60-day notice would have been required (i.e., a business circumstance that is caused by some sudden, dramatic, and unexpected action or conditions outside the employer's control, like the unexpected cancellation of a major order); or Natural disaster

So, then, what was this "sudden, dramatic, and unexpected" occurrence that Bayou Steel could not have forseen?  They still aren't saying.   It can't have anything to do with their Industrial Tax Exemption expiring next year.  That strikes us as imminently forseeable.  It's a lot of money, though.

One of the plant's parcels had been approved by the state for an industrial tax exemption, which cut the $1.4 million in assessed taxes on the plant by roughly $300,000 annually. Gauff said the 10-year exemption was set to expire in 2020.

I'm reminded here of something industry shill Loren Scott once told us about the "bonanza" waiting for us at the end of these 10 year tax exemptions.

"As an economist, I can only say,'Wow. Holy Cow,'" said Loren Scott, a Louisiana economist who has studied the state for 40 years. "We typically measured expansion in terms of hundreds of millions of dollars. Something like that makes your eyes bug out." He expects, for instance, that once 10-year tax-abatement deals expire, schools boards will "find themselves with a bonanza."

*Bonanza not guaranteed in the case of "unforseen busienss circumstances," I guess. Still, as we say, an expiring tax exemption isn't an unforseeable circumstance so there must be something else going on. 

Another thing we learned here is Bayou Steel is controlled by a private equity firm called Black Diamond.  Apparently, their investment was seriously underwater.

On Tuesday, the parent company of Bayou Steel Group filed for bankruptcy protection. In the filing signed by President and Chief Operating Officer Alton Davis, the company, which is controlled by a Connecticut private equity firm, said it had as much as $100 million in outstanding debts and less than $50,000 in assets.

Whoah how does something like that happen in such a sudden and unforseeable manner?  Those of us not intiated in the priesthood of high finance would very much love to know more about that.  Is it possible the wizzards were unable to cope with the "unforseeable" impact of Donald Trump's metals tarriffs?  The Governor certainly seems to think so.  And with good reasoning too as this Slate article explains.

This is a slight variation on a problem that plenty of critics saw coming when Trump announced his tariffs last year. While many American steel companies manufacture the raw metal from scratch, a number of them don’t. Instead, they specialize in making steel products out of cheap, semi-finished slabs of the material that they buy from abroad. The levies posed a serious threat to that segment’s business model. The administration has tried to skirt around this issue by granting companies waivers allowing them to import steel from countries like China and Japan duty-free, but the process has been contentious and has sometimes led to funny results, such as when one steel company that had spent a year praising Trump’s tariffs later sued the administration after it was denied an exemption from them.

Bayou Steel's operation apparently relied on imported scrap metal subject to the tariffs.  So it makes sense to suspect the tariff as a primary factor in the closure.  But as Slate also points out, steelmakers in similar circumstances have been complaining for a while now.  Bayou Steel was about to hand out pay raises to its workers.  Now they aren't.  And they're also about to tell those workers they aren't owed compensation due to the unforseeable nature of the situation.  Given that the tariff has been in effect for over a year now, is that a credible assertion? Or are they just trying to protect Black Diamond's investors?