OC's asbestos liability put at $7 billion by U.S. judge

4/2/2005

Choosing a midpoint between estimates of opposing creditor groups, a federal judge has ruled that Owens Corning is exposed to $7 billion in potential claims by people who were made sick by exposure to asbestos insulation produced by the firm until the early 1970s.

The long-awaited decision, which following a trial in January, was filed yesterday in U.S. Bankruptcy Court in Wilmington, Del. The ruling applies to OC only and doesn't include asbestos liabilities of the firm's Fibreboard subsidiary.

"We are very pleased that we have the ruling because it will allow us to move forward in the bankruptcy process" said Kristin Kelley, a spokesman for the Toledo building materials manufacturer.

"It was a key step," she said.

OC was neutral in the dispute over the amount of the asbestos valuation, and officials said they were prepared to accept any decision arrived at by Judge John Fullam, of U.S. District Court in Philadelphia. The decision could force the firm to increase a $3.6 billion accounting reserve - $5.9 billion when Fibreboard is included - currently on its books.

Whether the decision is able to break an impasse among creditors that has stalled the Chapter 11 case for nearly five years will depend how opposing groups react.

Lawyers for bank creditors couldn't be reached yesterday. Their experts argued that the liabilities should be set at $2.2 billion to $2.6 billion. The banks, which oppose OC's bankruptcy-exit proposal because they claim it allots too much to asbestos claimants, could now take the case to the U.S. Court of Appeals.

Elihu Inselbuch, a New York lawyer who represents a committee of asbestos creditors, refused comment.

Asbestos claimants support the bankruptcy-exit proposal, but could now withdraw that support because the valuation falls below a threshold agreed two years ago. They wanted a valuation of at least $11 billion, or $16 billion when combined with the liability of the Fibreboard subsidiary.

James McMonagle, a Cleveland lawyer appointed to represent the interests of people who will assert asbestos claims in the future, said supporters of the bankruptcy-exit plan likely will consult next week on arranging a meeting to discuss Judge Fullam's decision.

"We think the judge obviously didn't fully agree with what our experts had to say," Mr. McMonagle said. "But he recognized the credibility and enormity of the claims that are coming against OC. It is a significant step."

Mr. McMonagle expressed hope that it would prompt feuding creditor groups to resume negotiations toward a consensual plan that would speed OC's emergence from Chapter 11.

Because OC will be absolved from paying claims when it emerges from bankruptcy, the valuation will determine how much is placed into an independent trust fund that will handle claims.

Under the current plan, the fund will receive 38.5 percent of the valuation.

In deciding on $7 million, Judge Fullam wrote: "We are dealing with uncertainties and are attempting to make predictions which are themselves based upon predictions and assumptions."

Asbestos liability of OC's Fibreboard unit is separate from the parent company's.

Contact Gary Pakulski at:

gpakulski@theblade.com

or 419-724-6082.