Sunday, Apr 22, 2018
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This month pivotal for bankruptcy exit strategy

As Owens Corning approaches the fifth anniversary of its Chapter 11 bankruptcy filing Oct. 5, lawyers on all sides agree that September will be a month for negotiating and preparing to continue the fight.

This is a relatively sensitive time in the case, Norman Pernick, the company s lead bankruptcy lawyer in Wilmington, Del. said at a recent court hearing.

Feuding bond, bank, and asbestos claims creditors met with the company last month and will continue meeting this month to discuss the framework for a new bankruptcy-exit plan after an Aug. 14 appellate court ruling upset the existing proposal.

But even as those meetings take place, the court fight continues. The U.S. Court of Appeals in Philadelphia has given parties until next Tuesday to reply to a request for a re-hearing on the issue of whether OC and its subsidiaries should be treated as one company or separately.

The request came from the firm s bond-holders and a lawyer who represents the interests of future asbestos claimants. They were on the losing end of a decision which went in favor of bank creditors issued by a three-judge panel of the court Aug. 14.

The issue, while seemingly arcane, is important because it could nudge to bank creditors an additional $1 billion in new stock, bonds, and cash the company will distribute when it emerges from Chapter 11, according to lawyers in the case. The reason is that debt re-payment guarantees made by subsidiaries on behalf of the parent company in the late-1990s will have much greater value if the entities are treated separately.

The ruling won t affect how much the company will distribute to creditors, just how it will be divided. OC officials have said that they are less concerned about how the matter is resolved than reaching a settlement that will allow the firm to complete reorganization and exit Chapter 11.

Stephen Krull, OC legal chief, was unavailable for comment.

The company faces an important deadline Oct. 24 with the expiration of the exclusive period for it to file a bankruptcy-exit proposal without competition from one or more creditors groups.

Judge Judith Fitzgerald, who is hearing the case in U.S. Bankruptcy Court in Wilmington, Del., may merely extend the deadline for another six months as she has done repeatedly over the past five years. Or she could permit competing proposals.

Such extensions, which are routine in corporate Chapter 11 bankruptcies, will be largely ended by amendments to the nation s bankruptcy laws that take effect next month.

But the new rules won t affect OC because its case began before the amendments were passed, lawyers said.

The banks have previously signaled they were unhappy with management s handling of the Chapter 11, asking Judge Fitzgerald to appoint a trustee to take charge of the case and end what they regard as the firm s bias in favor of asbestos claimants. Company officials have denied any bias. The judge has not ruled on the matter.

But Mr. Pernick, in a hearing late last month, indicated that relations with the banks were warming.

We just had a meeting last week with the banks to discuss possible plans of reorganization and settlement strategies We re committed to working pretty hard to see if we can t make a resolution of the case in September, he said, according to a transcript of the hearing.

Timothy Graulich, who represents bank creditors led by Credit Suisse First Boston, added that since the appellate court decision, All the parties have been engaged with the debtors to try and reach some type of accommodation in this case.

But, at the same time, the parties are preparing for what will likely be the next legal fight if the negotiations fail and the appellate court ruling stands: a lawsuit against the banks by other creditors which alleges that the guarantees made by company subsidiaries are invalid because OC was technically insolvent at the time they were made because of asbestos liability debt.

OC, which filed for Chapter 11 protection in 2000, is seeking to discharge $12 billion in debt, not including asbestos liability of its Fibreboard subsidiary.

Contact Gary Pakulski or 419-724-6082.

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