Owens Corning has won an extension of exclusive rights in its bankruptcy reorganization until 31 January 2006.
US Bankruptcy Judge Judith Fitzgerald rejected a bid by holders of some of the firm“s b…
Owens Corning has won an extension of exclusive rights in its bankruptcy reorganization until 31 January 2006. US Bankruptcy Judge Judith Fitzgerald rejected a bid by holders of some of the firm“s bank debt to end the building material manufacturer“s control of its five-year-old Chapter 11 case. “Absolutely under no circumstances would I consider terminating exclusivity now,” Fitzgerald said at a hearing in Wilmington. Two years of litigation have held up progress in Owens Corning“s exit from bankruptcy, but the company has said it will file a new Chapter 11 plan by 31 December 2005. Norman Pernick, attorney for Owens Corning, said the company aims to meet that commitment and is still attempting to broker a deal among contending creditor groups. Pernick said there has been a “big shift” in the alignment of factions in Owens Corning“s Chapter 11 case, in which the firm is trying to appease personal injury claimants, bondholders and holders of bank debt as well as trade claimants. Long united in its opposition to Owens Corning“s reorganization proposals, the bank debt group appears to have split into two camps: one in favor of exclusivity, the other against. Speaking for holders of the majority of bank debt is Credit Suisse First Boston, which asked the court to end Owens Corning“s exclusivity. However, holders of about one-third of Owens Corning“s bank debt supported the company“s request for extended exclusivity. The pro-exclusivity group also holds enough bond debt to force anyone trying to negotiate a Chapter 11 plan to deal with its members, according to court documents. Members of the dual holder group, i.e. owners of both bank and bond debt, include King Street Capital Management LLC, D.E. Shaw Laminar Portfolios LLC, Lehman Brothers Inc., Harbert Distressed Investment Master Fund Ltd. and other investing funds. At earlier points in the case, the dual holder group differed from the official bondholder committee on important issues. Now, however, the group seems prepared to go it alone in reaching a deal on Owens Corning“s bank debt. J. Andrew Rahl, attorney for the official committee representing bondholders and trade creditors, said there was no doubt the bank group had fractured. Whether this augers well for prospects of a consensual Chapter 11 plan remains to be seen, however. “There probably is a better chance of deal,” Rahl said. “I don“t see how it can hurt.” A favorable federal appeals court ruling in August 2005 brought a windfall for many Owens Corning bank debt investors, who purchased their stakes at a discount earlier in the case. In October 2005, Owens Corning produced a figure of USD 538 million for the interest and fees owing to bank debt holders when it came to Chapter 11, an amount the debt holders want to see increased. “It“s apparent that they are still quite far apart on the dollar amount,” Rahl said. Immediately after the August 2005 ruling in favor of the banks, Owens Corning attempted to let the asbestos claimants and banks reach a deal among themselves. Years of uncertainty about how the courts would answer critical questions had ended, Owens Corning General Counsel Stephen Krull said, and the company wanted to let its creditors try to come to terms on their own. However, with the failure of that approach, Owens Corning is now close to finalizing a draft plan with asbestos creditors, one that it hopes will be a focal point for negotiations with bondholders and bank debt holders. As the 31 December 2005 deadline for filing a revised Chapter 11 plan approaches, stockholders are trying for a payout for themselves. A prospect viewed as nonexistent by the judge on 14 November 2005, given USD 7 billion in asbestos liabilities on top of the bank and bond debt. “The equity is out of the money,” Fitzgerald said. “There is not going to be an equity committee in this case.” Hopes of a recovery for shareholders appear to depend mainly on the prospects of the federal government assisting companies suffering from claims for asbestos damages. Owens Corning has maintained for years that current stockholders are expected to lose all in the bankruptcy case. Pernick said 14 November 2005 that the company would look again at the chances of a stockholder recovery if a Congressional initiative to set up a national trust to absorb asbestos liabilities from companies like Owens Corning makes any progress.