Kaiser Aluminum & Chemical Corporation (KACC)

kaiserThe Challenge
The Pension Benefit Guaranty Corporation (PBGC) had terminated the defined benefit pension plans of KACC and sought to recover on its claims against all of the estates in the bankruptcy.  KACC was an integrated worldwide aluminum company with operations and assets around the world.  There were three main challenges. First, there was not enough money to provide payment in full for all claims. Second, if the PBGC’s claim was reduced or capped, the other creditors would benefit. Third, some of the creditors had a bias and only wanted cash.  In addition to maximizing its recovery, the PBGC also wanted to make sure that policy issues related to the valuation of the claim for underfunding in the plans and the joint and several nature of the claims against all entities, including non-U.S. entities, were properly acknowledged.  All of these goals needed to be accomplished.

The Strategy
Because the PBGC was less concerned about what proportion it recovered in cash versus stock, the case team, led by Kelly, developed a strategy for negotiating the settlement. The settlement would have to require that all the estates that had value to distribute acknowledge the full claim. It agreed to a less than full pro-rata distribution from the estates that were paying claims primarily in cash.  At estates where the claims were being paid in new equity, Kelly pushed for a full pro-rata distribution to the claim.

The Advocacy
Kelly led the process of educating the PBGC leadership on the issues in the case and how the proposed settlement would satisfy PBGC’s need to avoid any negative precedent. It would set a precedent that PBGC could effectively balance both its economic and policy issues.  Kelly worked closely with the indenture trustees to persuade them that a settlement of the issues related to the pension plans produced a better outcome than litigation, and that the proposed settlement levels produced the recovery they were aiming to achieve.  Kelly worked closely with the unsecured creditors’ committee in the negotiations with KACC to develop a settlement to which all parties agreed.

The Result
The final plan of reorganization incorporated the structure proposed by Kelly. It ensured that claims were recognized in full at all estates, and that estates that paid claims in new equity were distributed to PBGC based on its full share of claims at those estates.  The settlement also capped PBGC’s recovery at the estates receiving cash, which allowed the bond holders to achieve a significant portion of their desired recovery in cash, which was their preference.


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