STEEL PARTNERS HOLDINGS L.P.
590 Madison Avenue, 32nd Floor
New York, New York 10022
January 20, 2012
VIA EDGAR AND FEDERAL EXPRESS
Jay E. Ingram
United States Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 4631
100 F Street, N.E.
Washington, D.C. 20549
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Re:
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Steel Partners Holdings L.P.
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File No. 0-54565
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Registration Statement on Form 10 filed December 15, 2011
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Dear Mr. Ingram:
Transmitted herewith for filing is Amendment No. 1 to Form 10 (“Amendment No. 1”), marked to show changes from our registration statement on Form 10 filed on December 15, 2011 (“Form 10”). We acknowledge receipt of the letter of comment, dated January 11, 2012, from the Division of Corporation Finance (the “Comment Letter”) with regard to the above-captioned matter. The following reflect our responses to the Comment Letter. The responses are numbered to coincide with the numbering of the comments in the Comment Letter.
General
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1.
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Please note that we have referred your filing to the Division of Investment Management for their consideration of certain matters relating to the Investment Company Act of 1940. We may have additional comments after completion of their review.
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We understand that the Division of Investment Management may have additional comments.
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2.
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Please note that the registration statement becomes effective automatically 60 days after its initial filing. Steel Partners Holdings L.P. or SPH will then be subject to the reporting requirements of the Exchange Act, including the requirements to file Forms 10-K, 10-Q, and 8-K even if there are comments open on the Form 10. If SPH does not wish to become subject to these reporting requirements, SPH may wish to consider withdrawing the Form 10 before it becomes effective automatically.
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We understand that we have the option to withdraw the Form 10 before it automatically becomes effective on February 13, 2012.
January 20, 2012
Page 2
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3.
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We note that SPH completed an exchange transaction, effective as of July 15, 2009, in which SPH acquired the limited partnership interest of Steel Partners II, L.P. or SPII in exchange for SPH’s common units which were distributed to former indirect investors in SPII. We also note that SPH’s common units are quoted on over-the-counter market in the pink sheets. Please provide us with an analysis addressing the Section 5 implications relating to the distribution of the common units effectuated in connection with the exchange transaction.
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Pursuant to the terms of an exchange agreement entered into among Steel Partners Master Fund L.P., Steel Partners Holdings L.P., Steel Partners LLC and Steel Partners II GP LLC (as amended and restated, the “Exchange Agreement”), Steel Partners Master Fund L.P. contributed to Steel Partners Holdings L.P. its entire ownership interest in Steel Partners II L.P. in exchange for limited partnership interests of Steel Partners Holdings L.P. The common units were issued by Steel Partner Holdings L.P. to Steel Partners Master Fund L.P. pursuant to the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. The transaction did not constitute a public offering as the offering was made to only one investor. Steel Partners II GP LLC, as the general partner of Steel Partners Master Fund L.P., was an “accredited investor” as such term is defined in Rule 501 of Regulation D and had full access to the information that would be included in a registration statement as it was under common control with the general partner of Steel Partners Holdings L.P. at the time of the exchange. The common units were subsequently distributed pro rata to the beneficial owners of Steel Partners Master Fund L.P. in October 2009. Steel Partners Holdings L.P.’s common units began being quoted on the over-the-counter market on the pink sheets on April 19, 2011. Prior to April 19, 2011, there was no active trading market for the common units.
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4.
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Please disclose the specific factual basis for and the context of all SPH’s beliefs, understandings, estimates, and opinions. To the extent that SPH relies on market analyses, please disclose whether the source is publicly available. If the source is unavailable for nominal or no charge, SPH must provide consent for its use or adopt the information as its own. Also, please provide us copies of all sources used for disclosure of statistics.
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We have revised our disclosure in Item 1 of Amendment No. 1 to the Form 10 in response to this comment to remove certain such statements and/or certain such qualifiers as to our belief, understanding, estimate or opinion, and we are providing supplemental materials that support the remaining such statements.
“HNH’s products are marketed and sold through its Lucas-Milhaupt business unit, which HNH believes is the North American market leader in the markets it serves” - Page 4. According to the World Silver Survey 2011 produced for the Silver Institute by GFMS Limited, a total of 7.6 million ounces of silver were used in the fabrication of silver brazing and soldering materials in the United States and Canada in 2010. Lucas-Milhaupt estimates that is sold approximately 32% of this amount in 2010. See Annex A.
“HNH’s products are primarily marketed and sold through its OMG business unit, the market leader in fasteners” - Page 5. See Annex B.
“HNH is a diversified manufacturer of engineered niche industrial products with leading market positions in several of the markets that it serves” - Page 4. In addition to the forgoing information regarding Lucas-Milhaupt and OMG, based upon the list of leading grocery retailers as reported in the 2011 Marketing Guidebook published by Stagnito Media, Kasco Blades and Route Repair Services estimates that it provides route delivery of bandsaw blades and grinder plates and knives to approximately 65% of the listed stores. See Annex C.
January 20, 2012
Page 3
Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 30
Financial Services, page 31
General
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5.
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Please provide all the disclosures required by Guide 3 for WebBank for all required periods.
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In response to this comment, we have added the disclosures required by Guide 3 for WebBank.
Provision for Loan Losses, page 43
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6.
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We note your disclosure that indicates the decrease in impaired loans was the result of a sale of nonperforming loans at the end of 2010 to a subsidiary of SPH. Please explain to us and clarify in your filing, if or how this sale reduced impaired loans on a consolidated basis. Please identify the subsidiary where the impaired loans now reside and discuss how they are assessed for recoverability.
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WF Asset Corp. (“WFAC”), an indirect wholly owned subsidiary of the Company, was created for the purpose of purchasing a portfolio of loans, participations in loans and real estate property from WebBank, which is also an indirect wholly owned subsidiary of the Company. WFAC purchased a portfolio of loans, participations in loans and real estate from WebBank on December 30, 2010 for a purchase price of $3,468,911. The purchase price represented WebBank’s net book value of the net assets that were sold to WFAC and as a result there was no gain or loss recorded on the sale. The fair value of the assets on WebBank’s books at the transaction date was calculated after taking into account any impairment of the assets by considering sources of recovery on each loan, including real and personal property and guarantees.
The purchase of the impaired loans and real estate had no effect on total consolidated impaired loans, investments and other assets but did change their classification from loans to investments and other assets. When held by WebBank, such assets were classified as loans in accordance with WebBank’s financial reporting policies. WFAC classifies the loans and loan participations purchased from WebBank as investments in held-to-maturity securities and the real estate property owned is classified as other assets.
SPH’s determination of whether a security is other than temporarily impaired incorporates both quantitative and qualitative information. The Company considers a number of factors including, but not limited to, the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, the reason for the decline in fair value, changes in fair value subsequent to the balance sheet date, the ability and intent to hold investments to maturity, and other factors specific to the individual investment.
We have revised the disclosure on page 44 of Amendment No. 1 under the subheading “Provision for Loan Losses” to clarify that this sale did not have any impact on our impaired loans, investments and other assets on a consolidated basis.
January 20, 2012
Page 4
Quantitative and Qualitative Disclosure about Market Risk, page 64
Risks Relating to Foreign Exchange, page 66
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7.
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Your disclosure states that you do not generally use derivative instruments to manage foreign currency risks. We note elsewhere in your document that you have substantial amounts of foreign currency derivatives outstanding as of December 31 2010, including an amount of restricted cash associated with these derivatives. We also note that it appears you recognized a material loss related to derivatives during the period ended September 30, 2011. Please revise your market risk disclosures to more fully discuss your exposures to foreign exchange, discuss the business purpose for the large foreign exchange derivatives position reflected in your financial statements, and clarify their impact on your financial statements.
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We have revised our market risk disclosure to more fully discuss our exposures to foreign exchange. We have also discussed the business purpose for the foreign exchange derivatives position and its impact on our financial statements.
Properties, page 67
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8.
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For leased properties, tell us what consideration SPH has given to filing the lease agreements as exhibits to the registration statement. See Item 601(b)(10) of Regulation S-K.
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We do not believe that any of the leases are material, in terms of “amount of significance,” as contemplated by Item 601(b)(10)(ii)(D) of Regulation S-K. We believe that there is suitable alternative space available for lease in each market where we currently lease facilities without additional material cost to us. Moreover, none of the individual lease payments is material in amount to us.
Financial Statements
Note 26 – Commitments and Contingencies, page F-83
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9.
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We note the various contingency disclosures in your filing. If there is at least a reasonable possibility that a loss exceeding amounts already recognized may have been incurred, please either disclose an estimate (or, if true, state that the estimate is immaterial in lieu of providing any quantified amounts) of the additional loss or range of loss, or state that an estimate cannot be made. Please refer to ASC 450-20-50.
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If you conclude that you cannot estimate the reasonably possible additional loss or range of loss, please supplementally: (1) explain to us the procedures you undertook to attempt to develop a range of reasonably possible loss for disclosure purposes and (2) for each material matter, what specific factors are causing the inability to estimate a range of loss and when you expect those factors to be alleviated. We recognize that there are a number of uncertainties and potential outcomes associated with loss contingencies. Nonetheless, an effort should be made to develop estimates for purposes of disclosure, including determining what potential outcomes are reasonably possible and what the reasonably possible range of losses would be for those reasonably possible outcomes.
You may provide disclosures on an aggregated basis.
January 20, 2012
Page 5
No estimate is required with respect to the HNH Pension Plan contingency arising from the WPC Group bankruptcy as any such amount would be immaterial to the Company. With regard to environmental contingencies, it is reasonably possible that additional losses will be incurred beyond those amounts currently accrued. The speculative nature of any additional potential expenses does not permit the Company to estimate the amount of any such loss or losses, nor would the Company be in a position to establish a range of any such loss or losses. In instances in which the Company is unable to provide an estimate of the reasonably possible additional loss or range of loss, the Company includes a statement to such effect for each such contingency disclosed in Note 26 of its financial statements.
Based on our current knowledge, we do not presently anticipate any such additional losses will have a “material” impact on our financial statements. Should the facts and circumstances change, including, but not limited to, results of future testing and/or changes in applicable environmental laws and/or regulations, we would adjust our accruals accordingly and/or add disclosure about the range of reasonably possible losses in excess of those accruals. In establishing accruals for environmental matters, we consult with our senior management, internal environmental staff, our outside legal and/or environmental consultants and our legal and accounting personnel. Accruals are developed based on the estimated costs of remediation for the particular site based on known or reasonably estimated information. We do not have enough information at this time to establish a reasonably possible range of loss in excess of accrued amounts.
The extent of expected remediation activities and costs varies by site. A number of factors affect the cost of environmental remediation, including the number of parties involved at a particular site, the determination of the extent of contamination, the length of time the remediation may require, the complexity of environmental regulations, and the continuing advancement of remediation technology. Remediation activities, generally involving soil and/or groundwater contamination, include pre-cleanup activities such as fact finding and investigation, risk assessment, feasibility study, design and action planning, performance (where actions may range from monitoring, to removal of contaminants, to installation of longer-term remediation systems), and operation and maintenance of a remediation system.
The estimate of expected remediation activities is less certain for those sites where testing may not have been started and/or sufficiently completed or where a remediation plan has yet to be completed, has yet to be approved by the relevant governmental agency or has yet to be implemented, and these are areas where there exists the reasonable possibility that additional losses will be incurred in the future. Due to the uncertainty surrounding these facts and circumstances, however, it is not possible to estimate a range of such unknown liabilities. As further information becomes available, whether from additional testing or approval of a remediation plan or otherwise, the Company will continue to perform a periodic evaluation of its accruals and will continue to evaluate our disclosures in light of ASC 450 and Item 103 of Regulation S-K.
Note 27 – Litigation and Regulatory Matters
BNS, page F-87
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10.
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We note that a subsidiary of BNS is the defendant in numerous asbestos related claims. Please refer to the Interpretive Response to Question 3 of SAB Topic 5:Y, and expand your disclosure to provide the claims and settlement information contemplated in the SAB.
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In response to this comment, the Company is supplementally providing (below) the requested claims and settlement information, consistent with Interpretive Response to Question 3 ("What disclosures regarding loss contingencies may be necessary outside the financial statements?") to SAB Topic 5Y. In providing this information, however, we note that this information clearly demonstrates that the referenced asbestos litigation has not had a material impact on the Company's financial condition, results of operations or cash flows to date. The Company manages these matters as routine litigation incidental to its business, and accordingly the Company does not believe that the requested information is required by Item 8 of Form 10, by Item 103 of Regulation S-K, or by ASC 450.
January 20, 2012
Page 6
"As of September 30, 2011, BNS Sub was a defendant in 319 such asbestos-related cases, compared to 305 cases as of December 31, 2010 and 299 cases as of December 31, 2009. During the nine months ended September 30, 2011, there were 40 new asbestos-related cases, 24 dismissed cases, and two settled cases; expenses totaled $10,582, and there were insurance recoveries in the amount of $74,389. During the twelve months ended December 31, 2010, there were 34 new asbestos-related cases, 21 dismissed cases, and seven settled cases; expenses totaled $44,162, and there were insurance recoveries in the amount of $104,500. During the twelve months ended December 31, 2009, there were 18 new asbestos-related cases, 33 dismissed cases, and four settled cases; expenses totaled $22,649, and there were insurance recoveries in the amount of $105,158 There have been no judgments against BNS Sub during these time periods, and settlements amounts have averaged less than $1,000 per case."
Rule 3-05 Financial Statements
SWH, Inc.
Independent Auditors Report
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11.
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Please obtain and file an audit report that includes the city and state of the relevant office of Brady, Martz & Associates P.C.
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We have provided a revised audit report that includes the city and state of the relevant office of Brady, Martz & Associates P.C., with Exhibit 99.5 to Amendment No. 1.
Exhibits
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12.
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Please file SPH’s bylaws or instruments corresponding to bylaws as currently in effect and any amendments to them. See Item 601(b)(3)(ii) of Regulation S-K.
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As a limited partnership, our principal corporate governance instrument is our Third Amended and Restated Limited Partnership Agreement, a copy of which was filed as Exhibit 3.5 to the Form 10.
Exhibits 10.4, 10.5, and 10.8
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13.
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We note that SPH did not file the attachments to the exhibits filed as exhibits 10.4, 10.5, and 10.8. Unlike Item 601(b)(2) of Regulation S-K, there is no provision in Item 601(b)(10) of Regulation S-K for excluding attachments. Please refile the exhibits with their attachments.
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We have refiled exhibits 10.4, 10.5 and 10.8 with Amendment No. 1, which include the attachments to the exhibits.
January 20, 2012
Page 7
Steel Partners Holdings L.P. acknowledges that it is responsible for the adequacy and accuracy of the disclosure in the filing, that staff comments or changes to disclosures in response to staff comments do not foreclose the Commission from taking any action with respect to the filing and Steel Partners Holdings L.P. will not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
If you have any questions, please feel free to contact our outside counsel, Steve Wolosky, at (212) 451-2333 or Jason Saltsberg at (212) 451-2320.
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Sincerely,
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/s/ James F. McCabe, Jr.
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James F. McCabe, Jr.
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Chief Financial Officer
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cc:
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Warren Lichtenstein,
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Chief Executive Officer
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Steve Wolosky, Esq.,
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Olshan Grundman Frome Rosenzweig & Wolosky LLP
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Annex A
Annex B
Annex C
