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AL Tech Steel Corp.'s $2.5 million outstanding debt to New York state from a 1977 bailout won't hinder further state financing intended to lift the Dunkirk company out of bankruptcy proceedings, according to a spokeswoman for the Empire State Development Corp.

"The new company will be assuming the debt," Caroline Quartararo said. "We've already taken that piece into consideration."

Atlas Steel Co. of Mississauga, Ont., is bidding to acquire Dunkirk's AL Tech, ending the Chapter 11 reorganization it began on Dec. 31, 1997. The United Steelworkers of America backs Atlas's bid, making it a front-runner for future control of AL Tech.

Neither the USW nor Atlas would discuss the amount of the proposed state financing or other aspects of the deal. AL Tech, maker of stainless steel bar and rod, will have to find a way to clear up debts of $23.7 million owed to Korean banks, according to papers filed in U.S. Bankruptcy Court in Buffalo.

The company's $2.5 million debt to the state resulted from a $10 million bailout in 1977. The funds were the subject of controversy when the state Job Development Authority and Chautauqua County Industrial Development Agency were found to have mismanaged a loan pool that was supposed to build on AL Tech's repayments.

The state gives AL Tech credit for meeting most of its obligation.

The debt "was originally $10 million and they paid that down," Ms. Quartararo said.

The economic development agency met with union and company officials last week to discuss the financing package, she said. Union officials have called a capital injection necessary to upgrade the steel mill's equipment.

The buyout plan would preserve about 230 jobs remaining at AL Tech's Dunkirk plant. A sister plant in Watervliet, near Albany, would be mostly closed. For the first nine months of the year, AL Tech posted a net loss of $3 million on sales of $61.8 million. On a cash basis, disregarding long-term costs like plant depreciation, the company has turned a profit of $1 million, court papers state.

Financial filings by AL Tech suggest that creditors would get little in a liquidation of the company. The book value of company property is $8.7 million, the papers state.

Unsecured employee benefit claims are AL Tech's largest debt, giving the steelworkers a major stake in the takeover outcome. The company owes employees $86.6 million in future benefits, $72 million of which is for post-retirement medical and insurance coverage.

Atlas' takeover plan would put 35 percent of the company into employees' hands through a stock ownership plan, union officials have said.

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