Pacific Steel Casting Company LLC, the 84-year old West Berkeley foundry that closed its doors in October, filed for bankruptcy on Jan. 25, but not before repaying a $3.8 million loan to Speyside Fund LLC, the entity that purchased the firm in 2014. The company also managed to pay more than $615,000 in salaries to its two top executives before the Chapter 7 filing, but couldn’t pay out the $845,746 in severance it owes about 70 employees.
Moreover, the only secured creditor, the first in line to get repaid, is the Speyside Fund. Pacific Steel Casting owes it $823,963 and the debt is secured by property. All the others owed money — former workers, the city of Berkeley (owed $88,712 for unpaid business tax and other fees), two sets of attorneys, the underwriters that provided a surety bond, plumbers, LinkedIn and more — will have to wait.
“The bankruptcy filing makes clear what Speyside’s priorities are — further looting the company to the detriment of the workers,” said Conchita Lozana-Batista, whose law firm, Weinberg, Rogers & Rosenfeld, battled Speyside Equity in court when the Ann Arbor company stopped paying into the workers’ pension and health funds in 2017. “We were surprised to see them as the only secured creditor. They are the ones that flipped it and stripped it, or tried to.”
Pacific Steel Casting Company repaid the Speyside Fund because it was a secured loan, said its attorney, Tracey Green of Wendel, Rosen, Black and Dean. The executives got paid because Pacific Steel was contractually required to pay them. She said workers got severance, too, although the filing shows they only received $35,000, not the full amount owed to them.
The Chapter 7 bankruptcy filing shows that Pacific Steel Casting Company has about $1.9 million in assets but $3.4 million in liabilities. Not listed among the creditors is the workers’ pension and health funds. Lozana-Batista said her firm would be filing a claim to recover unpaid pension contributions.
A meeting of creditors is scheduled for March 1 in bankruptcy court.
The history of Pacific Steel Casting is long, and its ownership has been complicated since 2014. The company was founded in 1934 in West Berkeley and was a family-owned entity until 2014 when it filed for bankruptcy. Speyside Equity, a company formed by men who met in business school in Michigan, purchased the assets of the bankrupt company for $11.3 million. It spun the assets into a new entity called Pacific Steel Casting Company LLC. It leased the plants and the land.
The new Pacific Steel Casting Company never earned as much as the old, which brought in $100 million in revenues each year. The revenues for the new Pacific Steel Casting Company were $19.45 million in 2016; $23.4 million in 2017; and $21.4 million from January 2018 to Oct. 31, 2018, according to court filings.
Despite those revenues, in January 2017, Pacific Steel Casting stopped paying into its workers’ health and pension plans, even though it had withheld health insurance funds from their paychecks, according to a lawsuit filed by the workers’ pension plan, which contended the company owed $421,133. The pension plan tried to get Speyside Equity, which had purchased the foundry’s assets, to contribute but the Speyside partners argued in federal court that they were a legal entity separate from Pacific Steel Casting Company and did not have any obligation to help out.
In Sept. 2017, Pacific Steel Casting announced it would shut down within 60 days. Union officials accused the company, led by President Krishnan Venkatesan, of sending casting work to a Huntington Beach foundry owned by Speyside and selling metal to scrap dealers, both of which violated union contracts. Venkatesan denied those allegations and said that revenue had begun to drop in 2014 when oil and gas prices plunged. One of Pacific Steel’s main products was making castings for oil rigs, and when those orders evaporated, the company saw an 80% drop in revenues.
Venkatesan was able to generate extra business for the company, which kept it open an extra 11 months, albeit with many fewer workers.
“They did their best to keep it open,” said Green.
The production side closed for good at end of October and Pacific Steel had vacated the premises by Nov. 28.
The pension fund and Pacific Steel Casting Company settled the lawsuit over unpaid health and pension benefits in November, with the company agreeing to pay about 50% of what it owed, according to Richard N. Hill, of Littler, the attorney for the company. He said the company could not pay more as it was running out of funds.
Yet it was during 2018 that Pacific Steel repaid the $3.8 million it owed Speyside Fund LLC. Pacific Steel Casting also paid Venkatesan, the president, and Jerry Johnson, the vice president, $615,000 in salary.
Bankruptcy filings show that the managing partner of Speyside, Jeffrey Stone, owns 10% of Pacific Steel Casting Company and other Speyside partners own unspecified amounts. The former president, Venkatesan, owns 1.7%. Alcast Company of Peoria, Ill. which acquired the original Pacific Steel Casting along with Speyside in 2014, owns 41.65%, according to the court documents.
The land along Second Street will be sold
When Speyside Equity acquired the assets of the old Pacific Steel Casting, it did not acquire the land. As part of the 2014 bankruptcy proceedings of the original Pacific Steel Casting, the 7.46 acres beneath the three foundries — at 1333 Second St., 1310 Third St., and 640 Gilman St. — and assorted outbuildings were spun into a new LLC called Second Street Properties. Its owners include former Pacific Steel Casting workers who were unable to collect a $5.4 million judgment for unpaid breaks levied against original owners, and workers owed pensions from the original company, as well as others. Arch and Beam, a bankruptcy administrator, oversees that entity.
Second Street Properties has put the property up for sale. The proceeds should go to pay off the workers still owed money by the original Pacific Steel Casting, but will not go to anyone affected by the bankruptcy of the new Pacific Steel Casting Company LLC.
Cushman & Wakefield, the commercial broker handling the sale, has renamed the property “Gilman Gateway” and is touting it as “strategically located.” Four or five entities, including one local group, are apparently interested in buying it, according to someone familiar with the process who did not want to be named.
The owners want Berkeley and its residents to weigh in on what the land might be used for. It is currently zoned “M” for manufacturing, but city officials are considering changing the zoning to MULI, or mixed-use light industrial, to expand the types of business that could go there. An overlay added when the West Berkeley Plan was adopted also allows for car dealerships.
Berkeley has not yet set firm dates for a series of community meetings but is trying to organize the first one for late February.
Another unknown is the amount of environmental remediation that will be needed on land that saw more than 80 years of castings, which involves many different types of metals, binders, and other possible pollutants.
The bankruptcy filing says that a “rigger spilled transformer fluid that contained PCBs [polychlorinated biphenyls],” and puts the clean-up cost at $33,848. The accident happened as Pacific Steel was vacating the premises, said Green.
Arch and Beam, the bankruptcy administrators, hired a firm to do an environmental assessment of the site. It may be released in mid-February, according to Berkeleyside’s source.
