Kaiser files for protection (February 18, 2002)

Faced with a heavy debt load, depressed metal prices and a broad economic slowdown, Houston-based Kaiser Aluminum (KLU-N) and its operating subsidiary, Kaiser Aluminum & Chemical, have filed for bankruptcy protection.

The company, North America’s third-largest aluminum producer, says the heavy burden of asbestos-related litigation and medical and pension costs contributed to its decision.

“The decision to seek protection under Chapter 11 will provide Kaiser with the opportunity to reorganize its financial structure,” says President John (Jack) Hockema said in a prepared statement.

Several assets are exempt from the bankruptcy filing, including: the 65%-owned Alpart alumina refinery and 49%-owned Kaiser Jamaica Bauxite Co. in Jamaica; the 20%-owned QAL alumina refinery in Australia; the 90%-owned Valco aluminum smelter in Ghana; the 49%-owned Anglesey aluminum smelter in Wales; and the wholly owned extrusion plant in Ontario.

The company says it has taken steps to ensure that its participation in each these operations, including certain costs and expenses, will remain unaffected by the filing.

In conjunction with the filing, Kaiser has executed a definitive loan agreement with Bank of America for US$300 million in debtor-in-possession financing, subject to the approval of the Bankruptcy Court. The financing, plus the company’s current invested cash, should be enough to cover operating needs while it restructures its business. The production and shipment of bauxite, alumina, primary aluminum products and fabricated aluminum products are to continue uninterrupted.

Kaiser raised a red flag at the end of January when it warned it would not be making a US$25.5-million interest payment on its 12.75% senior subordinated notes and would delay the release of its fourth-quarter earnings. In mid-December 2001, the company warned that fourth-quarter losses could come to between US35 and US45 per share, excluding unusual items.

At that same time, the company cautioned it might miss principal and interest payments on its 9.875% senior notes slated for mid-February 2002, plus interest due April 15, 2002, on its 10.875% senior notes.

Northwest smelters were idled earlier in the year in the wake of California’s energy crisis. The company had hoped to restart the smelters in October at 110,000 tonnes aluminum per year, down from a capacity of 273,000 tonnes.

After dipping below US30 early on Feb. 12, Kaiser’s shares recovered slightly by late afternoon to sit at US35 — 16, or 31%, off its previous close on the New York Stock Exchange. Over the past 52 weeks, the shares have traded in the range of US40-$4.90.