Asbestos names such as Federal-Mogul, Owens Corning and USG Corporation ticked up roughly three points each last week after Armstrong Holdings announced that it had gained the support of its asbestos personal injury claimants committee for its reorganization plan. Traders said that small pieces of Federal-Mogul traded in the 58-59 context, Owens Corning moved in the 57-58 1/2 range and USG was offered at 46, but no trades could be confirmed. There also have been recent reports that suggest asbestos liability will be limited, noted one dealer.
Market players said the boost did not come from the recovery value that bank debt holders would receive but rather the asbestos committee's acceptance of a plan, indicating that an end may be in sight to the long and complex reorganization. "The average asbestos-related bankruptcy takes five to seven years to come to fruition," said Michael Lynch, cfo of Federal Mogul. "We are hoping that we can get that done sooner."
Federal-Mogul's bankruptcy case is moving forward, but the end is still not in sight. The company recently extended its deadline to file a plan of reorganization by four months to March 2003. Regarding the company's current asbestos liabilities, Lynch said he could total the claims at the time the company filed, but he noted that part of the bankruptcy process is deciding whether or not the claims would be evaluated and assigned a value.
In Armstrong's case, its plan of reorganization will be handled so that a trust, under 524g of the U.S. bankruptcy code, would be created to deal with the company's present and future litigation. Owens Corning will pursue a similar trust structure as part of its reorganization plan. "It's our intent to set up a 524g trust," said Stephen Krull, Owens Corning spokesman, adding that the company wants to file its plan of reorganization on or before Nov. 26.
Section 524g of the bankruptcy code enables the debtor in Chapter 11 reorganization to transfer the liabilities away from the operating company into a trust and future claimants must file with the trust, which is historically funded with equity in the reorganized company and cash. "As we have gone through this process, we have learned more about the value of our asbestos liability," Krull said, noting that it was larger than expected.
Earlier this year, Judge Alfred Wolin was given an oversight role on large asbestos credits, including USG, Federal-Mogul, Owens Corning, Armstrong and W.R. Grace. At that time, market players suggested the consolidation would create a more efficient litigation environment (LMW, 1/14). Calls to Richard Fleming, cfo of USG, were referred to a spokesman, who declined to comment. Calls to Leonard Campanaro, Armstrong cfo, were not returned.