More than $20 million of Federal-Mogul's bank debt changed hands last week, rising up from the mid-to-low 60s into the 67 1/2 to 68 1/2 range on hopes that a resolution to the company's bankruptcy proceedings will be hammered out soon. The paper climbed after the Official Committee of Unsecured Creditors and the Official Committee of Asbestos Claimants filed a motion to terminate Federal-Mogul's exclusive right to file a plan of reorganization. "Serious negotiations are going on," said Michael Lynch, Federal Mogul cfo. "It's a sign that the process is proceeding," he added, declining to comment further citing the private nature of the negotiations. The hearing to discuss this motion will be held on Jan. 29.
The two committees support a plan that would allow unsecured noteholders to receive 49.9% of the common stock in the reorganized company and the remaining 50.1% would be placed in a trust under 524g of the U.S. bankruptcy code for asbestos claimants. Under this scenario, bank debt holders would receive secured notes in the full amount of their claims if no other settlement was reached and if it is determined that the bank lenders' claims are fully intact.
The bankruptcy court documents note that the unsecured creditors and asbestos claimant committees are challenging the "validity, priority and extent of the bank liens." If such a deficiency does exist, Federal-Mogul has insisted that some of the common stock should go to the banks a move that would disrupt the committees' current agreement. In the next couple of weeks, there will be a number of depositions delving into the legitimacy of bank lenders security claims. Specifically, the depositions will look into the circumstances surrounding the granting of security in connection with a December 2000 amendment to the credit agreement. Counsel representing the bank holders, referred calls to J.P. Morgan, the administration agent. An attorney representing the committees did not return calls by press time.
The committees contend that negotiations with Federal-Mogul are at an impasse, primarily because Federal-Mogul believes that it will not have enough debt capacity to pass through the bank debt claims in full. According to the recent motion, bank lenders agree that the company will have enough debt capacity to carry forward the full amount of indebtedness owed to the banks. Federal-Mogul's exclusive right to file reorganization expires March 3.
