WILMINGTON, Del. - Testifying under oath here yesterday, a top executive of Owens Corning was grilled by creditors and a government representative about the firm's decision to seek Bankruptcy Court protection Oct. 5 and a $400,000 payment to an investment banking firm the day before the filing.
Steven Strobel, treasurer of the Toledo Fortune 500 company, provided new information about the days and weeks leading up to the firm's move to seek relief from billions of dollars in asbestos liability claims. The developments occurred during a bankruptcy hearing at the Wilmington Wyndham Hotel that attracted a group of 50 creditors consisting mostly of vendors and lawyers representing suppliers, asbestos victims, and others. Such hearings are often the only chance creditors get to question executives of bankrupt companies under oath, according to bankruptcy experts.
Deteriorating economic conditions and rising asbestos claims prompted the building products manufacturer - Toledo's third largest company, with $5 billion in annual sales - to approach its bankers about the possibility of borrowing more money, Mr. Strobel explained. They refused to do so unless the company agreed to put up factories, equipment, and other assets to back the loans, he added.
Knowing that lawyers representing asbestos plaintiffs with which OC had reached millions of dollars in settlements wouldn't go along with that and were likely to demand immediate payment of money owed, the firm's board of directors decided at two meetings in September to file for Chapter 11 bankruptcy reorganization.
Frank Perch, a lawyer with the U.S. trustee's office in Philadelphia, asked the OC executive about the previously unannounced resignation of board member Curtis Barnette three days before the bankruptcy filing.
Mr. Strobel said he was uncertain about the reasons for the move by Mr. Barnette, retired chairman of Bethlehem Steel Corp. OC attorneys said later that the move was prompted by Mr. Barnette's fears about a potential conflict of interest because he has ties to the Toledo company's main bankruptcy law firm, Skadden, Arps, Slate, Meagher & Flom.
The law firm received a $2 million retainer from OC six days before the bankruptcy.
Mr. Perch quizzed Mr. Strobel at length about the six-figure payment to the investment banking firm of Lazard Freres & Co. Oct 4. The amount was twice the $200,000 a month OC had been paying the firm for financial services.
The OC official said he didn't know if the added money was pre-payment for future services.
Creditors have objected to the Toledo company's arrangement with Lazard, which could receive $10 million under a contract for financial services and advice during the bankruptcy.
The OC treasurer appeared nervous and uncomfortable during the 90-minute hearing.
He told the representative of the U.S. trustee's office that he was unsure if the company was making severance payments to two top executives who left OC in the year leading up to the bankruptcy or if recent changes had been made to the wage and bonus package of top officers.
Asked who would have such information, Mr. Strobel replied, “Mr. [Chief Executive Glen] Hiner.” The chairman of the board of directors compensation committee would know about the wage and benefit issue, Mr. Strobel added.
Mr. Perch asked the company to provide the names of other board members who would know.
David Bird, controller of Industrial Printing Co., of Toledo, asked Mr. Strobel why OC was late paying a bill for printing service. The OC executive said it was an isolated incident and that the company has been paying on time for services and supplies purchased after the bankruptcy filing.
Bankruptcy laws prevent OC from paying most bills incurred before the bankruptcy.
Industrial Printing is owed about $250,000 for work performed before Oct. 5, Mr. Bird said
Mr. Bird told a reporter he suspected that asbestos liability might force OC to filed Chapter 11 but was surprised it happened so soon.
Terry Brandon, an executive with a Washington state firm that supplies OC with paper backing for insulation, said he attended the meeting to meet members of the firm's two creditors' committees. “They need to know how we feel, “ said Mr. Brandon, of Longview Fibre Co.
The OC executive told creditors that none of the firm's foreign subsidiaries plan to file for bankruptcy now but that the situation is being assessed constantly.
Mark Chehi, an OC bankruptcy attorney, said creditors have been cooperative.
“So far this has been a very soft landing into Chapter 11 and things are going very well worldwide,” he said. However, he declined to say when the firm might emerge from bankruptcy or to estimate OC's asbestos liability.
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