Kaiser File For U. S. Chapter 11 Protection

... Fight to save VALCO from creditors....
To avoid bill collectors, many people don’t answer the phone.

Bankrupt Kaiser Aluminum Corp. is taking a different tack. It's asking the courts to prevent those calls from even being made when it comes to its pension obligations.

The Houston-based company on Tuesday, Jan. 14, filed a lawsuit against the Pension Benefit Guaranty Corp., hoping to block the quasi-government agency that insures corporate retirement plans from issuing liens against two non-bankrupt Kaiser affiliates.

In the suit, Kaiser asks the U.S. Bankruptcy Court for the District of Delaware in Wilmington to extend some protections under Chapter 11 of the federal bankruptcy code to the two units, Bermuda-based Trochus Insurance Co. and Ghana's Volta Aluminum Co. Ltd.

Trochus and Volta weren't among the 17 affiliates that filed bankruptcy along with Kaiser on Feb. 12, 2002.

Kaiser explained that it filed the lawsuit because it will not make a $15.5 million payment to its pension plans Jan. 15, leaving its pension obligations underfunded and those units facing PBGC liens.

Trochus insures Kaiser's global operations and if hit with a lien, the unit would probably fail solvency and liquidity requirements under Bermuda law. Kaiser believes it would face substantially higher insurance premiums if it has to get replacement coverage.

The company also said that Volta operates an aluminum smelter on Ghana's coast and that any lien might force that facility to shut down.

While in Chapter 11, companies and their bankrupt affiliates are protected from creditors' collection efforts. But Trochus and Volta need a court ruling to enjoy the same safeguards.

"[Kaiser] is reaching a point where the PBGC has the right to terminate its pension plan and assert claims and liens against Kaiser and those units for any liabilities that PBGC will hold," said Bill Rochelle, a bankruptcy specialist at Fulbright & Jaworski LLP.

He said Kaiser is taking a logical step to ensure that PBGC's claims remain unsecured in any reorganization.

But the PBGC, which guarantees payment of basic pension benefits, sees it differently.

"When a company fails to meet required contributions, liens arise," said PBGC spokesman Gary Pastorius in Washington on Tuesday. "[Kaiser] is seeking to extend bankruptcy protection to non-bankrupt foreign entities. We're going to argue against that."

Any claim from the PBGC typically becomes a major issue in bankruptcy cases where there's an underfunded pension plan, Rochelle said. As a result, the PBGC's claims demand a great deal of attention and are a crucial component of any reorganization plan. Among other things, liens that the PBGC attach can have serious implications involving a bankrupt company's debtor-in-possession financing.

In that vein, Kaiser said its DIP lenders, led by Bank of America Corp., have already granted the company a waiver in the event PBGC issues liens.

The aluminum maker also said Tuesday that nine more of its subsidiaries have voluntarily filed for Chapter 11 in Wilmington. That's where Kaiser filed 11 months ago. Those additional filings bring to 26 the number of Kaiser affiliates joining their parent in bankruptcy.

Press Release

Additional Subsidiaries Of Kaiser Aluminum File For U. S. Chapter 11 Protection; No Impact Expected On Day-To-Day Operations Or Credit Availability

HOUSTON, Texas, January 14, 2003 - In a move that is expected to have no impact on day-to-day operations, nine additional wholly owned subsidiaries of Kaiser Aluminum & Chemical Corporation today filed voluntary petitions with the U.S. Bankruptcy Court for the District of Delaware under Chapter 11 of the Federal Bankruptcy Code.

"From an operating perspective, the filings are a non-event," said Jack A. Hockema, President and Chief Executive Officer of Kaiser Aluminum. "Financial liquidity remains strong and is further protected by the actions taken today."

The voluntary filings were initiated to, among other things, protect the assets held by these subsidiaries against possible statutory liens that may arise from the Pension Benefit Guaranty Corporation (PBGC) if Kaiser does not make a $15 million contribution to its salaried pension plan by January 15. (The company had previously disclosed that it did not intend to seek Bankruptcy Court approval to make that payment.) Such possible statutory liens would, among other things, violate the provisions of Kaiser's Debtor-in-Possession (DIP) credit agreement.

The filings include the U.S. legal entities through which Kaiser owns interests in its Jamaican operations; however, the legal entities that own the operating facilities themselves -- the Alpart alumina refinery and the KJBC bauxite mining operation in Jamaica - are not included in the filings and thus are not subject to any bankruptcy-related impacts. The filings also include the legal entities through which Kaiser owns its interest in an aluminum extrusion plant in London, Ontario, but Kaiser expects court approvals (through the U.S. Court and through an ancillary application to the Ontario Superior Court of Justice in Toronto, Canada of measures that will eliminate any impact on operations at that facility.

Hockema said, "We want to be absolutely certain that customers, employees, and suppliers understand that these filings will have no impact on the day-to-day operations of Alpart, KJBC, and London. In particular, the filings were not prompted by cash flow concerns, business conditions, or balance sheet issues at any of the affected subsidiaries. We expect the Bankruptcy Court to approve our request to permit the filed entities to continue to make payments in the normal course of business (including payments of pre-petition amounts) to creditors and others for items such as materials and supplies, freight, taxes and, of course, salaries, wages, and benefits for employees."

Kaiser expects approval of such payments primarily because the amounts are not material and are essential to ongoing operations. The company also expects approval of a continuation of routine intercompany transactions involving, for example, the transfer of materials and supplies among affiliates.

"In short, the filings simply represent yet another step on the path toward the company's restructuring and eventual emergence from Chapter 11," said Hockema.

The company also has received a waiver from the DIP lenders to assure that the availability under the DIP credit agreement will not be affected by the failure to make the pension payment, the additional Chapter 11 filings, or the imposition of any statutory PBGC liens. In addition, the company and its DIP lenders expect to seek approval of a further amendment to the DIP credit agreement to formally incorporate the waiver provisions.

The filings include the following subsidiaries, all of which are U.S. entities, except where noted. Several of the subsidiaries are special-purpose or dormant entities.
Alpart Jamaica Inc. (not the Alpart alumina refinery)
KAE Trading, Inc.
Kaiser Aluminum & Chemical Canada Investment Limited (Canada)
Kaiser Aluminum & Chemical of Canada Limited (Canada)
Kaiser Bauxite Company (not the KJBC bauxite mining operation)
Kaiser Center Properties
Kaiser Export Company
Kaiser Jamaica Corporation
Texada Mines Ltd. (Canada)

At the time of its original Chapter 11 filings in 2002, it did not appear to be necessary to include these nine subsidiaries in the bankruptcy proceedings. However, in light of the accelerated funding requirement for the salaried retirement plan - and in light of the steps taken to ensure that the filings have no impact on operations - it was determined that today's filings constituted an appropriate and prudent protective measure.

Certain other majority-owned subsidiaries, such as the legal entity that owns the Valco aluminum smelter, have not been included in the filings to date for a variety of legal, technical, or jurisdictional reasons. Instead, and where pertinent, measures intended to provide similar protection are being pursued.

Kaiser and 16 of its subsidiaries originally filed Chapter 11 petitions in February and March of 2002. In connection with those cases, Kaiser had previously obtained U.S. Bankruptcy Court approval to set January 31, 2003 as a general claims bar date. In respect of the subsidiaries included in today's Chapter 11 filings, the company anticipates that the debtors will ask the Court to set a separate (and later) claims bar date.

Kaiser Aluminum & Chemical Corporation, the operating subsidiary of Kaiser Aluminum Corporation (OTCBB:KLUCQ), is a leading producer of alumina, primary aluminum and fabricated aluminum products.