Trust fund interest is subject of testimony

1/15/2005

PHILADELPHIA - A trial to determine how much bankrupt Owens Corning owes people with asbestos illnesses moved into a key new phase yesterday as the first of a parade of number crunchers took the stand.

While the big guns - the financial experts who will defend a raft of estimates submitted on behalf of competing creditor groups - won't be heard until next week, Judge John Fullam listened to testimony in U.S. District Court here about how to calculate how much interest will likely be earned by a trust fund that will be set up to pay claims when OC exits Chapter 11.

While seemingly arcane, the issue is important because the higher the expected interest rate, the less that needs to be set aside and the more money that will be left for other creditors. OC's current bankrupty-exit plan provides for those creditors to collect 38.5 cents on every dollar they are owed.

Accounting expert Larry Tersigni recommended that Judge Fullam consider a rate of 4.41 percent to 6.07 percent or what could be earned on a risk-free investment such as U.S. Treasury notes.

Such a rate is appropriate, he said, because the money will be used to pay tens of thousands of asbestos victims who become ill from workplace exposure to cancer-causing asbestos insulation once produced by the Toledo building products manufacturer.

Under cross-examination, Mr. Tersigni acknowledged the assets of the trust fund, whose establishment will end lawsuits against OC, are expected to include investments with risks. For one, the fund is expected to own at least 51 percent of newly issued stock of OC. And, as currently envisioned, the trust will be permitted to make other investments that, while safe, won't be risk-free, an attorney for bank creditors noted.

Also, new information emerged about differing estimates of the firm's asbestos liability. The lowest estimate, from an expert hired by OC's banks, is for $2.2 billion to $2.6 billion.

However, that doesn't include liabilities of Fibreboard Corp., which OC acquired in 1997. Fibreboard formerly produced asbestos insulation for steam pipes and other high-temperature settings. After bankruptcy, its asbestos claimants will be paid from a separate trust fund with $1.3 billion kicked in years ago by insurers.

Meanwhile, the asbestos claimants committee, using estimates of a different expert, is seeking to have OC's asbestos liability, including Fibreboard, at at least $16 billion. Because liability estimates far exceed the value of OC, the trust fund would get only about 38.5 percent of whatever amount the judge sets.

Testimony will resume Monday in the case, which is expected to last at least three more days. It's not clear how quickly the judge will rule.

Contact Gary T. Pakulski at:

gpakulski@theblade.com

or 419-724-6082.