Asbestos creditors to hold only 22% of reorganized OC

5/16/2006

As part of a deal reached by bankrupt Owens Corning with creditors, asbestos-injury claimants will have a much smaller role in the reorganized company than once thought.

A pair of trust funds to be set up to pay people who became ill because of exposure to asbestos insulation produced by the firm in the 1950s and 1960s will hold just 22 percent of the Toledo company's newly issued 131 million shares, under terms of the agreement announced last week.

It was once believed inside the company that those trusts would own more than half of OC because of unique legal provisions governing big corporate asbestos bankruptcies.

Laws stipulate that asbestos trusts set up to pay claims be granted at least 51 percent of new stock typically issued by firms when they emerge from Chapter 11.

Lawyer Norman Pernick, who represents OC in case, said OC will comply with the law by offering more than half of its shares to the trusts. Legal representatives for asbestos claimants have indicated, however, that they would prefer to have a larger percentage of cash.

So instead, trusts set up by OC and its Fibreboard subsidiary are to receive $4.3 billion in cash and 28.6 million shares of stock.

In a complicated transaction, details of which remain to be worked out, many shares that otherwise would have gone to asbestos trusts will go to creditors holding bonds issued by the company before Chapter 11, lawyers said.

That will give bond-holders a majority stake in the company. But the implications for OC are different because bond-holders are a diverse group unlikely to act as a single unit, lawyers said.

On the other hand, they added, a pair of trust funds holding a majority stake could have been expected to exercise greater influence on the company, including demanding multiple spots on the board of directors, lawyers said.

Under the deal announced last week, four people will be added to the current 12-member board.

Two of the four will be named by bond-holders, one by a committee of asbestos creditors, and the other by a lawyer who represents interests of people who will assert asbestos claims in the future.

John Cooney, a Chicago lawyer who is chairman of OC's asbestos claimants committee, said he supported the decision to place more of the assets of the trusts into cash.

"Any trust would want to have assets that were not tied to a single company," Mr. Cooney said. "They would want diversification."

"It is more typical than not" in asbestos bankruptcies for trust funds to sell company shares instantly or soon after the case, he said.

Part of the reason is that trust funds must generate cash to pay claims, said James McMonagle, a Cleveland lawyer who represents future asbestos claimants.

The attorney added, however, that it was important to him that the trusts hold a large block of stock as a way to preserve assets long into the future.

"I believe that Owens Corning is a vital company that is economically sound and has good management," he said.

"If I didn't think that I wouldn't want to hold onto any stock. I believe there is value and the value will increase over time."

Under the deal announced last week, OC expects to emerge from bankruptcy in late October.

The company will pay $8.6 billion on $13.6 billion in claims. Banks will be paid in full. Recoveries include 50 cents on the dollar for asbestos claimants and 58 cents on the dollar for bond-holders.

OC, which makes roofing shingles and building insulation, filed for bankruptcy in October, 2000, to seek protection from its mounting asbestos-liability claims. The case was filed in Wilmington, Del.

Contact Gary Pakulski at:

gpakulski@theblade.com

or 419-724-6082.