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Published: Tuesday, 3/1/2005

Judge orders restrictions on trading in OC

BY GARY T. PAKULSKI
BLADE BUSINESS WRITER

WILMINGTON, Del. - A U.S. bankruptcy judge yesterday placed temporary restrictions on the trading of Owens Corning stock after the Toledo company complained that big buys by major investors are endangering tax deductions and credits.

Judge Judith Fitzgerald imposed the restrictions during an emergency hearing in Delaware yesterday.

The move will require investors who own 4.75 percent or more of OC's 55 million shares to notify the company and give it an opportunity to object before further purchases or sales.

Presiding by teleconference from her offices in Pittsburgh, Judge Fitzgerald scheduled a hearing for March 21 on whether to make the restrictions permanent.

" We are seeking to prevent the loss of future tax benefits to the company which would negatively impact our progress toward emerging from Chapter 11," spokesman David Dimmer said in a telephone interview. "This action is being taken strictly as a precautionary measure to protect valuable tax attributes."

The judge's ruling does not affect trading by smaller investors.

The development occurs during a period of intense trading in the shares of the Toledo building products manufacturer.

Since the federal election in November, nearly 150 million shares of OC have been bought and sold by investors who apparently believe Republican victories will lead to establishment of a long-sought national trust fund to pay asbestos victims.

Investors have been attracted to OC because it is a profitable company, that, without multibillion-dollar asbestos liability, would not be in Chapter 11. The firm filed for bankruptcy court protection more than four years ago.

The firm's stock, whose future is uncertain even with a bailout and slated to be voided without one, traded yesterday at slightly more than $2 a share on the over-the-counter bulletin board.

In asking the judge to act, OC pointed to the activity of two investment groups that have snapped up large chunks of stock in recent months.

Harbert Distressed Investment Master Fund Ltd., a hedge fund based in Birmingham, Ala., has acquired 5.6 million shares, or 10 percent of OC's total shares, according to its most recent filing Friday with the U.S. Securities and Exchange Commission.

And Lehman Brothers Holdings Inc. has acquired 3.9 million shares, or 7 percent of the total, SEC filings show.

If these two firms and other major shareholders were allowed to continue to buy stock, the Internal Revenue Service would likely rule that OC has changed owners.

Such a ruling would limit OC's ability to take advantage of tax benefits that will help the firm reduce its tax bill now and after it emerges from bankruptcy, company lawyers told the judge. Those benefits include $1 billion in unused deductions and $130 million in past losses that can be used to reduce taxes owed on future profits.

Calls placed to Harbert in Alabama and Lehman Brothers in New York were not returned yesterday.

Under the order, investors with 4.75 percent or more of OC shares must identify themselves to the company and the court. Those who accumulate that amount of stock in the future will have 10 days to file such a notice. The stipulation is similar to an SEC rule requiring investors to disclose when they acquire 5 percent or more of a firm's stock.

But the court order goes beyond SEC rules, requiring large shareholders to notify the court when they decide to increase or decrease their holdings. OC will then have 15 days to object, and the judge will determine whether the transaction should be allowed to proceed.

OC requested the order Wednesday, saying in a motion that "it is imperative" that the company "closely scrutinize any transactions that would increase the risk of an 'ownership change' because a substantial owner shift has already occurred."

Contact Gary Pakulski at:

gpakulski@theblade.com

or 419-724-6082.



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