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Owens Corning Descends On Consolidation Fears

Owens Corning's bank debt dropped approximately 11 points to the 75-77 range as lenders fear the judge overseeing the bankruptcy case will rule against their interests.

Owens Corning’s bank debt dropped approximately 11 points to the 75-77 range as lenders fear the judge overseeing the bankruptcy case will rule against their interests. A hearing between attorneys representing the company and debt holders was held last Monday to decide whether Owens Corning’s debt will be consolidated under one entity.  


“It’s a matter of priority. Without substantive consolidation the bank debt would fall ahead of the bondholders. With it, basically everybody is in the same boat and the lenders’ recovery would be reduced,” one trader explained. “However, substantive consolidation is the basis of the bankrupt company’s reorganization plan and under this scenario bank debt recovery would only be about 60-70 cents on the dollar (LMW 8/18). Owens Corning has a $239 million letter of credit facility and a $1.3 billion revolver. Bondholders and trade creditors have approximately $1.7 billion in claims.


“When we lent them the money, we lent the money to different subsidiaries. By consolidating the debt they are attempting to get out of what they owe us,” said one source on the lenders side. An Owens Corning spokesman did not return calls regarding the hearing.


Judge John Fullam is now overseeing the case. Last May, Owens Corning’s bank debt climbed to the 75-78 range following the recusal of Judge Alfred Wolin, from cases involving Owens Corning, USG Corp. and W.R. Grace & Co. The removal was requested by Kensington International and Springfield Associates, Owens Corning largest lenders, which claimed there was a conflict of interest regarding two consultants appointed by Wolin. The motion was backed by Credit Suisse First Boston, the agent bank for the lending syndicate.


The latest move is significant as Owen Corning’s pro rata had climbed over 10 points to the 86-90 range after a tentative agreement was reached between Democrats and Republicans to resolve long-standing asbestos litigation. Additional trading on W.R. Grace and Federal-Mogul Corp.’s bank debt took place on the back of Owens Corning’s rise, though these names have not dropped with Owens Corning. A trader noted that the other asbestos names are not promoting substantive consolidation


W.R. Grace’s pro rata was seen trading above par in the 99-101 range. Meanwhile, Federal-Mogul’s debt was quoted in the low 90’s context. J.P. Morgan, Lehman Brothers, CSFB and Goldman Sachs were involved in trades on these three names, according to a dealer. “Litigation issues are being resolved,” another trader said.” However, the Owens Corning spokesman, commenting on this aspect of the bankruptcy, said it is too early to tell if the agreement reached will be the end of the asbestos issue.


Federal Mogul’s facility includes a $1 billion revolver priced at LIBOR plus 1 1/2%, a $360 million “A” loan priced at LIBOR plus 2% and a $346 million revolver priced at LIBOR plus 2 1/2%. W.R. Grace has a $500 million facility. Spokespeople for W.R. Grace and Federal-Mogul did not return calls. An USG spokesman declined comment.


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