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Kaiser Aluminum Seeks Protection from Creditors Under Chapter 11 Robert Guy Matthews, Staff Reporter The Wall Street Journal, February 13, 2002

Kaiser Aluminum Corp. filed for Chapter 11 bankruptcy-court protection, burdened by high debt, low prices and overcapacity in the global aluminum industry.

Houston-based Kaiser, the country's third-largest aluminum maker, missed a $25.5 million debt payment last month and was scheduled to pay $174 million on Friday to its bondholders. If it missed that payment -- which became increasingly likely -- Kaiser could have been forced into bankruptcy proceedings by it creditors. By filing for court protection voluntarily, Kaiser has more control over the proceedings and its assets. Kaiser Aluminum is 63% owned by Maxxam Inc., a Houston investment concern controlled by Texas financier Charles Hurwitz.

"We have a basket of key issues that prompted the filing: debt, rising retiree health-care costs, asbestos litigation and the soft economy," said Jack A. Hockema, chief executive officer and president of Kaiser. "The most important part is that core operations are sound and it will be business as usual for the plants." Indeed, Kaiser said it reached agreement with Bank of America to receive $300 million in debtor-in-possession financing, subject to court approval. The financing would allow Kaiser's production and shipment of alumina, primary and fabricated aluminum products and bauxite to continue without disruption.

The aluminum industry began seeing a slump in demand and prices early last year that worsened and spread to all segments, including the profitable aerospace market. Even industry leader Alcoa Inc., Pittsburgh, which has one of the lowest cost structures in the industry, posted its first quarterly loss in nearly a decade for the fourth quarter of 2001.

Despite the gloom, analysts say the aluminum market is showing some signs of having bottomed out and a modest recovery could come by the second half of 2002. Orders for aluminum grew 27% in January from December, and inventories are beginning to decline.

"We think the wind is at our backs," said Wayne Atwell, aluminum analyst for Morgan Stanley Dean Witter.

Also hurting Kaiser Aluminum have been costs to settle asbestos-related litigation. These settlements are "running in excess of $100 million a year before insurance recoveries," Mr. Hockema said. As of Sept. 30, about 112,400 claims had been filed against the company with a total estimated liability of about $633.1 million, according to the company's most recent 10-Q filing to the Securities and Exchange Commission.

Shares of Kaiser Aluminum , which had revenue of $1.36 billion in the first nine months of last year, were down 16 cents, or 31%, to 35 cents.

At the end of last year's third quarter, Kaiser had debt of about $905 million, of which about $350 million was owed to its banks. The company was scheduled to pay $400 million in February 2003 and an additional $225 million in October 2006.

Mr. Hockema also said that cash costs for pension and retiree health care nearly doubled in two years. In 2001, Kaiser paid $70 million in those costs compared with $40 million in 2000. "Those costs will continue to escalate in future years," he said, as the company's ranks of retired workers grow.

Kaiser has been hit hard by last year's power crunch in the Pacific Northwest, in which big consumers of electricity were facing sharp price jumps. Rather than paying the huge increases, Kaiser and other aluminum companies shut down their smelters. As a result, Kaiser has had to buy aluminum from competitors to use in its aluminum fabrication and extrusion businesses.

Also included in the Chapter 11 filing was the company's operating subsidiary, Kaiser Aluminum & Chemical Corp., and other units. But some of the company's interests in foreign operations aren't covered in the filing.

Bluefish points out that Kaiser actually benefited from electricity prices.
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