Aluminum giant files for bankruptcy, but state already feels Kaiser's pain

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CHICAGO — Kaiser Aluminum, the nation's second-largest aluminum maker, sought bankruptcy-court protection yesterday because of asbestos-related lawsuits and falling profit in an industry dominated by Alcoa and Alcan.

Kaiser's spending on plant expansion and the expense of defending asbestos complaints put the company behind on about $700 million in bond debt, analysts said. Kaiser said last week it would not make debt payments of about $200 million this month.

The Houston-based company, which has 6,000 employees, faces costs of about $132 million and more than 122,000 lawsuits related to asbestos while trying to cope with declining demand from automakers and plane makers.

"The casualties become the companies like Kaiser that are slower to react," HSBC Securities analyst Georges Lequime said. He has a "sell" rating on the company and said he doesn't own Kaiser shares.

Kaiser is 62 percent owned by timber and real-estate company Maxxam Group, which is run by financier Charles Hurwitz. Shares of Kaiser fell 16 cents, or 31 percent, to 35 cents yesterday. In 1995, they traded for $20.

The $400 million in Kaiser's 12.75 percent bonds due Feb. 1, 2003, are trading at about 19.5 cents on the dollar. Maxxam, also based in Houston, fell $1.64, or 15 percent, to $9.63.

Maxxam bought Kaiser in 1988, taking it private, then offered shares in the company again in 1991. Hurwitz also acquired Pacific Lumber through Maxxam in a 1986 transaction engineered by Michael Milken and Ivan Boesky.

Kaiser listed $3.3 billion in assets and $3.1 billion in liabilities in Chapter 11 papers filed yesterday in U.S. Bankruptcy Court in Wilmington, Del.

Kaiser won't pay $174 million in bonds due Friday and missed an interest payment last week of about $26 million.

The company said it received a $300 million loan from Bank of America yesterday.

Kaiser's raw-aluminum shipments fell by more than half in the third quarter, the most recent results available, while the average aluminum price fell 15 percent. The price of aluminum on the London Metal Exchange also fell 15 percent over the past year amid the first U.S. recession in a decade.

Kaiser's drop in shipments stemmed from its two plant closures in Washington state. Alcoa has closed two plants in Washington also and one in Oregon.

Measured by aluminum-making capacity, Kaiser is the world's 13th-biggest; Alcoa is the biggest, followed by Alcan. Alcoa also is largest by sales, which totaled $22.9 billion in 2001. Kaiser's 2000 sales totaled about $2.2 billion.

Pittsburgh-based Alcoa, Paris-based Pechiney and Montreal-based Alcan may be interested in some of Kaiser's plants, said Victor Lazarovici, an analyst for BMO Nesbitt Burns.

Among the most attractive would be a mill in Trentwood, Spokane County, that makes aircraft aluminum, he said.

"A lot of things went wrong," said Lazarovici, who rates Kaiser "market perform."

Kaiser Chief Executive Jack Hockema said asset sales would only be a short-term solution.

"While we have examined many alternatives including, but not limited to, asset sales and debt restructuring, no alternative provided more than a partial or temporary fix," Hockema said.