Testimony of Brattle Principal Yvette Austin Smith Contributes to Win for United States Steel Corporation in Debt/Equity Classification of Intercompany Debt


The Ontario Superior Court of Justice recently ruled that financing provided by United States Steel Corporation (USS) to its subsidiary U.S. Steel Canada, Inc (USSC) was debt rather than equity. The decision retained the priority of over $2 billion of United States Steel’s claims in the Companies’ Creditor Arrangement Act (CCAA) proceedings of USSC.

Brattle’s Role

In October 2007, USS acquired the predecessor company of USSC and funded the transaction with intercompany loans and equity. In September 2014, following a downturn in the worldwide steel market, USSC sought protection under the CCAA. Certain USSC creditors challenged the validity of USS’s intercompany debt claims as bona fide indebtedness. These creditors retained two finance experts to support their allegation that USS’s intercompany loans should be recharacterized as equity.

Brattle Principal Yvette Austin Smith was retained by Blake, Cassels & Graydon, counsel for USS, to review and rebut the conclusions from these two experts. Ms. Austin Smith and Brattle consultants performed various analyses to demonstrate that the terms of the intercompany debt were consistent with terms available in a broad set of third party debt markets (including the leveraged buyout market), and that, as of the date of the financing transactions, it was reasonable to expect that USSC could service its debt.


Ms. Austin Smith testified in court in January 2016. Justice Wilton-Siegel issued his decision on February 29, 2016, and rejected the recharacterization of USSC’s debt to equity. In particular, he credited Ms. Austin Smith with explaining the importance of (1) evaluating the transactions using ex ante information rather than using hindsight; (2) performing a debt capacity analysis taking into account reasonably projected cost savings; and (3) considering the realities of a diverse corporate debt market from which financing could have been achieved.

The Brattle team included principals Yvette Austin Smith and Bin Zhou and associate Jehan deFonseka.