Kaiser Steel, Out of Cash, Ends Medical Plans : Ex-Chief Offers Rescue if New Chairman Resigns From Ailing Company
The hard-luck story of Kaiser Steel took another turn Monday as newly elected Chairman Bruce Hendry said that the company has run out of cash and is canceling medical benefits for nearly 6,000 retirees and current employees.
Two efforts were disclosed, however, that could reinstate the benefits. Kaiser Steel’s recently deposed chairman, Monty Rial, said that he has lined up an unidentified financial backer to bail out the company on the condition that Hendry resigns.
In addition, the United Steelworkers filed suit Monday in U.S. District Court in Los Angeles, seeking to restore Kaiser Steel’s health-care plans with Kaiser Permanente Medical Care Program and New York Life Insurance Co.
The termination of the medical benefits breaks a link that traces back to the industrial empire founded by Henry J. Kaiser, who established the principle of free health care for his employees in the 1930s.
“We’ve got 446 surviving spouses that get a monthly pension of $90 or less in addition to Social Security who cannot afford medical costs,” said Frank Anglin, a former steelworkers union official who heads Kaiser Steel Cares Foundation, a nonprofit corporation formed in 1985 to help hardship cases stemming from a reduction in health benefits that year.
“These are people whose husbands said when they were alive, ‘You won’t have to worry about medical costs, honey, because I worked at Kaiser,’ ” Anglin said.
The company’s 1,000 current employees will be able to bill the company for their medical costs despite the cancellation of the health benefits contracts, Hendry said. Retirees, however, will not be allowed to do that. Pension benefits are insured by the federal government and are not affected, Hendry said.
Deteriorating Condition
Kaiser Steel’s latest problems stemmed from its steadily deteriorating financial condition and a bitter battle for control of the Colorado Springs, Colo.-based company.
During 1986, Kaiser Steel’s already shaky financial health worsened as falling oil prices hurt both its coal and steel-fabricating operations. In addition, preferred shareholders won the right last year to elect a majority to Kaiser Steel’s board of directors when Kaiser failed to make required payments.
Hendry, representing a group of preferred shareholders, was named chairman and chief executive of Kaiser Steel on Jan. 7, as part of a settlement of a contested election. The settlement also installed two Hendry-backed candidates on the board and three management-backed independent candidates who represented preferred shareholders as well. Rial and two other incumbent Kaiser directors remained on the board to represent common shareholders, composed primarily of Rial’s Perma group of companies.
In a letter sent Friday to retirees, Hendry said: “Tragically, the once-mighty Kaiser Steel does not have the financial ability to continue funding your medical benefits.”
Many of Kaiser Steel’s former employees live in Southern California near the Fontana steel mill that the company closed in 1983 and sold the next year.
About 4,300 retirees and 200 of Kaiser Steel’s present employees are covered by a contract with Kaiser Permanente, which expires today. Those employees have 30 days to switch to self-paid coverage with the health maintenance organization although some leeway will be granted on a case-by-case basis, a Kaiser Permanente spokeswoman said.
Another 800 current employees and about 600 retirees are covered by New York Life Insurance, a Kaiser Steel spokesman said. That coverage also has lapsed, he said.
Hendry said he blames former management for leaving the company in poor financial shape.
“There is virtually no income (from company operations) and yet we have these huge benefits,” Hendry said. “Sooner or later it had to come to an end.”
Rial, however, called terminating the medical benefits “unconscionable.”
“We have people calling us on the telephone who are terrified, who need coverage today, not months from now after a bunch of people fight each other over assets,” Rial said at a news conference.
“We want to announce today that we have a plan to save Kaiser Steel Corp. and that we have secured a source of backing for the company that could allow Kaiser the time to work out a financial restructure and to be recapitalized,” Rial said.
Rial said the financial backer is ready to commit “tens of millions of dollars, which would give us capital long enough to work on the balance of restructure.”
Hendry said Monday that there are no plans to seek bankruptcy-law protection for Kaiser Steel but some large creditors could well force the company involuntarily into bankruptcy.
However Rial contended that his sources have told him Hendry recently “told Kaiser’s officers he wanted some creditors to file us involuntarily into bankruptcy.
“He (Hendry) even asked that a list be prepared of creditors who could be encouraged to file (the company) into bankruptcy,” Rial continued. “Further, he has hired bankruptcy council, using cash which could have paid retiree medical benefits, and told them to plan to file the company into bankruptcy if the company has not involuntarily filed.”
