View this article online: https://www.claimsjournal.com/news/national/2006/01/30/64784.htm
USG Corporation announced today that it has reached an agreement to resolve all present and future asbestos-related personal injury claims, enabling the company and its subsidiaries to take a significant step toward emerging from bankruptcy.
The agreement requires USG to fund a trust established under Section 524(g) of the bankruptcy code for asbestos personal injury claims. Initially, after the plan becomes effective, the trust will be funded with $900 million in cash and a contingent note for another $3.05 billion.
If Congress passes legislation to establish a national asbestos fund to pay for injuries, USG payments would be limited to $900 million, which is what USG believes it would have been required to pay into the national trust fund. USG supports the national trust fund.
The agreement was reached with the Asbestos Personal Injury Claimants Committee and the court-appointed representative for Future Asbestos Claimants, and is also supported by the committees representing both unsecured creditors and stockholders.
USG and its subsidiaries filed Chapter 11 bankruptcy petitions on June 25, 2001 to resolve asbestos claims in a fair and equitable manner and protect the long-term value of the company’s businesses.
Under the agreement, USG will establish and fund a personal injury trust to pay asbestos personal injury claims. USG’s bank lenders, bondholders and trade suppliers will be paid in full with interest.
Stockholders will retain ownership of the company. Financing for the plan is expected to be provided from USG’s cash on hand, a $1.8 billion rights offering to existing stockholders backstopped by Berkshire Hathaway Inc., tax refunds and new long term debt.
The terms of the agreement will be contained in a plan of reorganization that the company expects to file in February along with a disclosure statement. After voting on the plan, the plan will require approval by both the Bankruptcy Court and the District Court that oversees the cases.
“This agreement will achieve the key goals we established when USG and its subsidiaries filed Chapter 11 in 2001,” said William C. Foote, Chairman and CEO. “Upon final court approval, our trade creditors, bank lenders and bondholders will be paid in full, in cash, with interest; USG and its subsidiaries will emerge from Chapter 11 free of all asbestos personal injury claims; significant shareholder equity will be preserved; and we will emerge with a solid balance sheet that will enable us to continue to invest and grow the company. Importantly, after more than four years in Chapter 11, the agreement will also enable compensation to flow to claimants who have suffered an asbestos related illness.”
Key Terms of the Asbestos Agreement
All present and future asbestos personal injury claims against USG and all of its subsidiaries will be channeled to and paid by the new 524(g) trust, including claims against present subsidiaries such as U.S. Gypsum as well as claims in which USG companies may be alleged to have responsibility for products made or sold by former subsidiaries such as A.P. Green.
The contingent payments will be paid as follows: $1.9 billion due 30 days after the adjournment of the current session of Congress, and another $1.15 billion due six months after the adjournment of Congress. However, if before the adjournment of the current session, Congress passes legislation establishing a national asbestos personal injury trust fund, such as the FAIR Act (Senate Bill 852, The Fairness in Asbestos Injury Resolution Act of 2005), the contingent note will be cancelled and no additional payments will be made, unless that legislation is later found unconstitutional.
As a result, if Congress passes the FAIR Act as currently drafted, USG’s payments for personal injury claims under the agreement would be limited to $900 million, an amount that USG believes is approximately what the company would have been required to pay into the national trust fund.
The company said that terms of the agreement, if approved by the court, provide a clear path for the company and its subsidiaries to emerge from Chapter 11 free of asbestos personal injury liability, regardless of the outcome of national asbestos legislation, thus avoiding a potentially lengthy, contentious and uncertain bankruptcy case. If Congress fails to enact FAIR, the creation and funding of a 524(g) trust triggers significant tax refunds, an important component of the funding of the contingent payments.
Asbestos property damage claims are not included in the agreement. The company intends to hold discussions with certain representatives of asbestos property damage claimants about resolving their claims as part of the bankruptcy. Property damage claimants whose claims remain unresolved will have the right to pursue those claims in the courts after confirmation of the plan of reorganization.
USG said it continues to support the Fairness in Asbestos Injury Resolution Act of 2005 (the FAIR Act, S.852) which was approved by the Senate Judiciary Committee in May 2005. The legislation has not yet been voted upon by the full Senate. The company believes that FAIR may come before the full Senate as soon as February, 2006. A description of the provisions of the Bill and its current status in Congress can be obtained at www.asbestossolution.org.
Source: USG