Federal-Mogul Corp. bank debt started trading actively after the company announced it has reached an agreement in principle on a reorganization plan. The bank debt was quoted in the 74-76 level up from the high 60s, where it was trading two weeks ago. "People think that there is upside at these levels," noted one dealer.
Under the reorganization plan, lenders owning $1.6 billion in bank debt will receive a portion of a new senior secured term loan and 11-year junior secured payment-in-kind notes. Calls to Michael Lynch, Federal-Mogul cfo, were referred to a spokeswoman. She declined to comment on the specifics of the plan, noting that they have not yet been finalized. She did note, however, that the company was looking to finalize a reorganization plan and file its disclosure statement by March 6, with emergence from bankruptcy likely to occur in mid-to-late summer.
The agreement in principle shadows a plan that is sought after by the Official Committee of Unsecured Creditors and the Official Committee of Asbestos Claimants. It provides that the unsecured creditors would 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. These parties filed a motion earlier this year to terminate Federal-Mogul's exclusive right to file a plan of reorganization. The hearing to discuss this motion was held on Jan. 29, but the company still retains the right to file a plan before early March.