Kaiser Steel Files for Protection Under Chapter 11
Kaiser Steel, a troubled steel fabricator that cut off medical benefits for its 6,000 workers and retirees two weeks ago, said Thursday that it filed for protection from its creditors under Chapter 11 of the federal bankruptcy code.
Bruce Hendry, chairman of the Colorado Springs, Colo.-based company, said Kaiser Steel filed the bankruptcy petition in Denver under “intense pressure from creditors and suppliers” who threatened to initiate involuntary bankruptcy proceedings against Kaiser. “We decided we’d rather do it ourselves.”
Hendry said he is trying to arrange for financing that will allow the cash strapped company to continue operating, but he declined to provide details. He did say that he expected the bankruptcy filing would have a positive effect on Kaiser since “it will allow us to operate in a smoother fashion. . . . It will give us breathing room to reorganize.”
The filing is the latest piece of bad news for the troubled company, its 1,000 employees and its 5,000 retirees, most of whom worked at the big Kaiser Steel mill in Fontana before it closed in 1983 and continue to make their homes in Southern California.
There was no announcement Thursday about the company’s pension programs, but Hendry said in response to a question that Kaiser’s pension fund is “grossly under funded.” But the basic pension benefits are federally insured and secure, he said, although he had little information about other aspects of the company’s pension funds or benefits.
A company spokeswoman said the company’s pension fund is about $150 million to $200 million under funded.
In Washington, the Pension Benefit Guaranty Corp., the federal agency which insures private pensions of 38 million workers, confirmed that Kaiser Steel pensions are protected “up to the maximum allowed by law,” or up to a monthly payment of $1,857.95.
Monty Rial, a director and former chairman of Kaiser Steel, said Thursday that $400 a month is being paid in supplemental pension benefits to workers who took early retirement when the Fontana steel mill was closed and later sold. Those benefits are not insured by the federal government. He noted, however, that there is currently $36 million in that fund.
Kaiser Steel’s finances have deteriorated rapidly since the summer, when it missed two dividend payments to preferred shareholders and failed to make a payment into a fund to retire its preferred stock. Two weeks ago, the company said it ran out of cash and canceled medical benefits for its retirees and employees. The company lost $32.6 million for the first nine months of 1986, and its debt exceeds $240 million.
The company also has been battered by foreign competition and by a battle for control between Rial and Hendry, who took over Rial’s jobs as chairman and chief executive last month.
Rial, in an interview, said he opposed the bankruptcy filing, which he predicted will hurt Kaiser’s chances of getting fresh financing. He said the bankruptcy filing was “frightening and shocking.”
Telephone calls from anxious retirees flooded the offices of the Kaiser Cares Foundation, a nonprofit organization founded to assist retirees after a 1985 cutback in medical benefits. “My phone has been ringing constantly, and more than 60 people have come in with questions,” said Frank Anglin, a former steelworkers union official who heads the foundation. “It is a bad thing. . . . It shows the company is in deep, deep trouble.”
A Chapter 11 filing gives a company a reprieve from its creditors while it works out a way to pay its bills. In its bankruptcy petition, Kaiser Steel listed its 20 largest creditors and said they were owed a total of $8.7 million. It said it was compiling a list of its assets and liabilities.
The Pension Benefit Guaranty Corp. has been busy rescuing the pension funds of steel companies lately. Last month, the organization moved to rescue pensions of retirees at LTV, the nation’s largest steelmaker, which filed for bankruptcy law protection in 1986.
LTV’s pension plans were under funded by an unprecedented $2.1 billion, making it the biggest pension rescue ever. The PBGC faces a $4-billion deficit as a result of the LTV bankruptcy and problems at other companies. The agency is asking Congress to raise the premium it charges to employers to pay for the insurance fund.
In its bankruptcy petition, Kaiser said its biggest creditor was New York Life Insurance, to which it owed $1.8 million. New York Life, one of Kaiser’s health care insurers, has said that Kaiser owes it $4.3 million in fees. Other large creditors were USR Corp., $1.08 million, and Kaiser Foundation Health Plan, $530,172.
