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I~ Kaiser at a nice price. • Why Kaiser, with a billion tons of high-grade coal-enough to cover sales for 300 years-needed 255 mil- lion more tons isn't clear. Howard Allen, chairman of Southern Califor- nia Edison and a Kaiser Steel director, approved the swap on behalf of Kai- ser's preferred stockholders, and so did his Fellow Kaiser director, retired SCE Chairman William Gould. Allen, who has a reputation for probity, says that he relied on Eaimess opinions. Kaiser shelled out $78 million for the same Perma assets Frates valued 18 months earlier at only $65 million. What's more, because the SPS con- tract was valued aC only $12.2 million this time around, the value of Rial's coal properties must have risen to $65.8 million-a 65% increase. Rial claims a fairness opinion horn Don- aldson, Lufkin & Jenrette blesses the deal, but he won't let Footles see it. With Eaimess opinions filling the air, Kaiser Steel paid Eor the contract and the coal with $55 million of land, cash and near-cash, and assumed $23 million of Perma's debts. Perma also borzowed $30 million from California Federal Savings & Loan Association. So, Rial was in control, and Frates went away happy. When the dust set- tled, Frates had $20 million of cash, a $6 million near-cash receivable Kaiser had owned and $IS million of the Kaiser land traded to Rial. Taking his $40 million this way rather, than in cash allows Frates ]who is now stalk- ing Kaiser Aluminum to proclaim with a straight face that Kaiser's prob- lems today aren't his fault. Rial had traded illiquid assets to Kaiser Eor land and cash he could use to buy out Frates and settle debts. Ah, leverage., The successive buyouts by Frates and Rial left Kaiser light on cash and marketable assets. The company, with $230 million of revenue a year, was stuck with $25 million of prcfcrrcd dividend pay- ments annually and $27 million a year for pension and health benefits to 6,000 steelworker families. A pre- scription for disaster. Even though Rial did a creditable job of expanding Kaiser's coal sales, the heavily leveraged company couldn't meet its bills when coal prices softened and its other business, steel Fabricating, collapsed. Kaiser missed the May and August dividends on its prcfcrrcd shares and is in de- fault on many of its debts. Rial hasn't stinted himself, howev- er. He took $2.4 million in salary last year. Kaiser paid $4.6 million to Perma for selling coal ]which seems not unreasonable] and paid another rnm~rc nr1-~rnmn $388,000 for Perma's efforts to sell Kaiser's oil and natural gas to others. jKaiser, unfortunately, hasn't sold any oil or natural gas and has little pros- pect of selling any soon.j Rial claims his 1986 salary was under $300,000 for the first eight months, and that he's cutting it to $225,000 a year. Generous of him. Rial is nothing if not energetic. He talks about building a combination waste treatment plant and industrial park on Kaiser land in Fontana. He claims to have a deal with the Federal Pension Benefit Guaranty Corp. to as- sume Kaiser's pension obligations in return for zero coupon debt and pre- ferred stock. Zero paper=and more common-is being offered to pre- ferred holders. Rial says Chase Manhattan Bank will refinance Kaiser unless a Footles story messes things up. He claims he can save Kaiser, given a chance. Whether he'll get one is unclear. With Kaiser virtually worthless, a battle has erupted over its remains. A group of preferzed shareholders led by M1Krteapolis stockbroker Bruce Hendry jFoascs, Sept. 9, 1985j invoked the preferred holders' right to take over Kaiser because two dividends had been missed, and hope to throw out Rial at a meeting on Oct. 30. Meanwhile, Fontlrs has discovered, Rial effectively lost control of the company in September. The Perma Group's Kaiser stock was pledged as collateral to Industrial Indemnity jpart of Xerox' Crum & Forster insur- ance subsidiary] as a guarantee of Per- ma's $30 million loan Erom CalFed- and Perma defaulted on that loan Sept. 5. This would all be funny iE it weren't so sad. [f Kaiser goes under, Kaiser pensioners face a cutoff of health benefits, which aren't federally in- sured. With Kaiser preferred recently trading at under 2 a share, old Kaiser Steel shareholders-some of whom lost their jobs when the steel plant closed-have seen millions of dollars evaporate. Henry f. Kaiser must be rolling in his grave. ^ The nation's commercial banks are losing another nice chunk of the • commercial loan market. This time it's medium-term loans, and they are .. . $~ l~~~ion ~~~Cffig~~ Walk ®tdt the ~®~~ ey Ben Webermen S COMMERCIAL tlANKS gO[ shaky er, credit regulation got looser and competition got keener, the banks couldn't drop their fees and interest rates enough to keep their lucrative business in short-term pa- per. Corporations simply sold their own debt directly to investors, or put it out through a Goldman, Sachs or a Merrill Lynch. Investors hardly blinked. In 1971 banks controlled 90% of the short- term loan market. By I98G they had seen SO% of a much gieater market drift away to commercial paper. Now they are taking the same sort of beating, and For the same reasons, in the $40 billion market in mcdium- tcrm notes-credits that mature in one to ten years or more and carry charges well under the banks' lending rate. As with short-term-paper, many commercial banks have been forced because of their own shaky balance sheets to price themselves out of the medium-term market for high-rated companies. "Many, many large curpumte bor- rowers have as good or better credit ratings than all but a very few of the banks lending in this market," ex• plains a Fed spokesman. "Moreover, for large borrowers the banks no long- erhave any special expertise in assess- v.z