Owens Corning Bankruptcy Plan Includes $5 Billion Asbestos Fund

May 12, 2006

Building products maker Owens Corning will pay more than $5 billion to asbestos claimants and as much as $2.27 billion to holders of bank debt as part of a plan to exit federal bankruptcy protection.

The asbestos claimants, creditors and other parties agreed to the plan that would see Owens Corning emerge from more than five years of bankruptcy protection this fall, company lawyer Norman Pernick told a bankruptcy court.

Essentially, the plan shifts the $7 billion in asbestos liabilities off the books of Owens Corning and into a trust that will be established for the plaintiffs.

Owens Corning will pay cash and shares worth more than $5.2 billion into the trust, making it one of the biggest asbestos settlements in U.S. history, said John D. Cooney, whose Chicago law firm, Cooney & Conway, represents the asbestos plaintiffs.

After the plan is approved, “we’re asbestos-free,” Pernick said.

The plan, which has an effective date of Oct. 30, would enable the company to exit bankruptcy with a value of $5.86 billion, according to a settlement sheet obtained by The Associated Press. Existing equity would be wiped out and 131.4 million shares of new stock will be issued.

Shareholders would be given warrants allowing them to buy 5 percent of the company at $45.25 per share for seven years. Bondholders will get 26.6 million of the 131.4 million new shares and warrants to buy an additional 72.9 million shares at $30 per share.

The Toledo, Ohio-based company sought Chapter 11 bankruptcy protection in 2000 in an effort to shield itself from claims for billions of dollars in damages linked to health-endangering asbestos products it made decades ago.

The plan, filed in December, follows years of litigation between attorneys for asbestos claimants, owners of the company’s bank debt and others.

The U.S. Supreme Court recently declined to hear an appeal of another plan that would have lumped together the company’s assets. Earlier reorganization proposals failed because of disputes between creditors.

Under the original version of the plan, shareholders would have gotten nothing.

Shareholders and some creditors had been hoping for legislation that would set up a national trust to take over asbestos liabilities from companies such as Owens Corning. But a bill that would have established the $140 billion victims’ fund was defeated in the U.S. Senate in February, though supporters have vowed to revive it.

Asbestos is a commercial name for minerals that were commonly used in insulation, fireproofing and wallboard materials, and automotive brakes until the 1970s. Asbestos particles, when inhaled, can cause lung scarring, breathing problems, cancer or heart failure.

If approved by the court and creditors, the new plan could mean a windfall for hedge funds that own most of Owens Corning’s bank debt.

Holders of about $1.5 billion in bank debt would be paid as much as $2.27 billion in cash, including interest.

Bankruptcy court Judge Judith K. Fitzgerald scheduled a hearing July 10 to review a disclosure statement that outlines the plan.

The proposal then would be sent to creditors for a vote before a confirmation hearing set for Sept. 18.

Owens Corning has agreed to pay $4.29 billion in cash into a trust for asbestos claimants, plus 28.6 million shares of equity in the reorganized company.

“Although nothing can ever repair the loss of lives that has occurred, today’s settlement represents a fair resolution for both the victims and Owens Corning,” Cooney said in a statement.

Anthony L. Gray, an attorney for the shareholders, said he and his clients were pleased with the deal.

“We think that it’s a very good result for the holders of the preferred securities and the equity security holders,” he said. “This was a major step forward for us.”

On the Net:

Owens Corning: http://www.owenscorning.com/

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