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Published: Tuesday, 10/5/2004

Bankruptcy at OC enters fifth year; tab at $330M

BY GARY T. PAKULSKI
BLADE BUSINESS WRITER

One of the nation's most closely observed corporate bankruptcies passes a milestone today, the fourth anniversary of Owens Corning's Chapter 11 filing.

The asbestos-injury-driven case, which executives initially predicted would be wrapped up in three years, has turned into a slugfest as creditors groups fight with each other and the company over how much they will recover.

On June 30, the Toledo Fortune 500 firm's tab for lawyers, financial advisers, and other Chapter 11 expenses for itself and various creditor groups hit $330 million, according to securities filings.

"There is an order of magnitude in this case that is rarely seen," said Sam Gerdano, executive director of the nonprofit American Bankruptcy Institute.

As the bankruptcy enters a fifth year, company officials said two key issues dividing creditors and holding up a resolution of the case could be decided soon.

Judge John Fullam, a federal judge in Philadelphia who is overseeing the multibillion-dollar case, is expected to rule any day on arguments by bank creditors that they have a greater claim on company assets - and thus are entitled to a larger recovery than the others - because of unique provisions in loan agreements, said Stephen Krull, company legal chief.

Additionally, Judge Fullam, who replaced another federal judge who was ousted this year over the appearance of bias, has scheduled a hearing Jan. 13 to sort through conflicting estimates of the firm's asbestos liability.

OC and lawyers for installers and other workers exposed to cancer-causing asbestos insulation once made by the firm peg the number at $16 billion. Their chief rivals, bank creditors who are owed $1.5 billion, say that estimate is much too high.

The outcome is important because if the judge were to decide on a number smaller than $16 billion, it could boost the 38.5 cents for each dollar owed most creditors in the firm's current bankruptcy-exit plan.

However the judge rules, the company hopes the decision will nudge feuding parties back to the bargaining table for a settlement.

However, OC's legal chief was unwilling to estimate when the firm might emerge from bankruptcy, because of the possibility of an appeal by the losing party. If that happens, it could delay the case by an additional six months to a year.

"I don't think that it serves any purpose if we predict dates at this point," Mr. Krull said. "If we're in an environment where our creditors are not able to reach agreement, we can be working through this for another year or two."

That is a far cry from the approach of retired Chief Executive Glen Hiner and other officials Oct. 5, 2000, when the firm filed for Chapter 11 relief in U.S. Bankruptcy Court in Wilmington, Del.

In an effort to put the best face on a difficult situation and boost the morale of 20,000 employees worldwide, they noted that asbestos claims in the future would be paid by a trust fund separate from the company and that bankruptcy would end OC's decade-long battle to stay afloat amidst thousands of new lawsuit filings each year.

Public relations executives coined the phrase "Clear and Free by '03." One wag, responding skeptically on an Internet message board, quipped "Hope we're alive in '05."

But contrary to fears, the company, a top producer of insulation, roofing shingles, and other building materials, has performed well in bankruptcy under new Chief Executive David Brown and Chairman Michael Thaman, Mr. Krull said.

The firm has made more than $1 billion in capital improvements at its factories and other operations; pumped $600 million into pension plans; boosted cash on its balance sheet by more than $500 million to $800 million; and cut workplace injuries in half over the last three years to 600 worldwide.

Additionally, this year the firm expects sales to grow by more than 10 percent. For 2003, OC reported profit of $115 million on sales of $5 billion.

The firm has also stayed active locally through such events as sponsorship of the Jamie Farr Ladies Professional Golf Association tournament, Mr. Krull noted.

Although most Chapter 11 cases are resolved more quickly, there are many instances of bankruptcies lasting as long as OC's, said Mr. Gerdano, of the American Bankruptcy Institute. "The more complicated the case, the longer it's going to take. This one obviously has a lot of issues. There are so many interests in play."

The case advanced this summer when a committee representing bond-holders dropped their opposition to OC's bankruptcy-exit proposal, leaving bank creditors and a group of dissident bond-holders as the only holdouts.

But even if the holdouts eventually sign on, the company faces two more hurdles: a mail vote among creditors and a confirmation hearing by either Judge Fullam or presiding Judge Judith Fitzgerald, of Delaware bankruptcy court.

Contact Gary Pakulski at:

gpakulski@theblade.com

or 419-724-6082.



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