Following a critical court decision in mid-August 2005, building products giant Owens Corning has had “an encouraging number of preliminary conversations” with creditors aimed at reworking its Chapter…
Following a critical court decision in mid-August 2005, building products giant Owens Corning has had “an encouraging number of preliminary conversations” with creditors aimed at reworking its Chapter 11 exit plan, the company“s lead bankruptcy lawyer said 29 August 2005. Norman Pernick told US Bankruptcy Judge Judith Fitzgerald that the company met in late August with holders of its bank debt, who emerged victorious from a crucial court hearing on 15 August 2005. More meetings are scheduled in September, Pernick said, as the company tries to reach new agreements with major creditors before an 24 October 2005 hearing. At that hearing, Owens Corning could face a bid by creditors to take control of the bankruptcy proceedings. Owens Corning has retained exclusivity, or the sole legal right to propose a Chapter 11 plan, since filing for bankruptcy in 2000. However, its current period of exclusivity runs only to the 24 October 2005 hearing, and a challenge from creditors at that point could upset the company“s control of the course of its Chapter 11 case. The decision that forced Owens Corning back to negotiations on the Chapter 11 plan came from the Third Circuit Court of Appeals, which ruled the company should be treated as many companies rather than one entity for purposes of the bankruptcy. The decision preserves guarantees negotiated by Owens Corning“s lenders and puts obstacles in the path of the other major group of creditors, including hundreds of thousands of asbestos claimants. It also destroys a fundamental premise of Owens Corning“s existing Chapter 11 proposal, which has been on hold for more than two years as the banks mounted successive legal challenges. When the Third Circuit ruling favoring the banks was issued, other creditors turned to a dormant lawsuit which challenges the value of the bank debt guarantees on other grounds. Filed early in the case, the so-called “fraudulent conveyance” action was stayed while the consolidation issue made its way through the courts. The action alleges the loan guarantees are invalid since they were value traded away by an insolvent company. Whether Owens Corning reaches a negotiated settlement with warring creditors or is hit by a revival of litigation is likely to be decided in the next few weeks of bargaining. “All the parties have been engaged with the debtors to try to reach some kind of accommodation in this case, but have also been preparing for what happens if that doesn“t happen,” said Timothy Graulich, an attorney for bank debt holders. Owen Corning wants to use the bankruptcy process to protect itself from overwhelming asbestos liabilities by setting up a trust to pay out claims for asbestos-related damages. The more assets the banks can lay claim to, the less will be available to fund the asbestos trust. Bank debt guarantees could decrease the value of the trust by as much as USD 1 billion, say lawyers.