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Owens Corning: banks sue for return of loans

Building products and fiber glass company Owens Cornings is being sued by banks that provided the Ohio-based firm with a USD 1.8 billion credit line. In the action launched 15 October 2003, the banks …

Building products and fiber glass company Owens Cornings is being sued by banks that provided the Ohio-based firm with a USD 1.8 billion credit line. In the action launched 15 October 2003, the banks say Owens Corning misled them on the size of payments under an asbestos settlement plan. Credit Suisse First Boston, the agent for the banks, filed the lawsuit in U.S. Bankruptcy Court in Wilmington, Delaware, where Owens Corning“s Chapter 11 case is being heard. It is alleged in the suit that the company borrowed more than USD 650 million from March to the end of June 2000, even though company officials knew they had agreed to asbestos settlements with law firms that surpassed the sum the company could pay out by USD 500 million. The suit claims Owens Corning was “intentionally or recklessly false and misleading” in failing to tell the lenders it was overextended on the settlement program and was in default under the loan agreement. The banks are asking the court to order Owens Corning to repay funds borrowed on the loan from March to October 2000. The banks are also seeking to recover payments to 20 law firms under the Owens Corning national settlement program from March to October 2000. Owens Corning had sales of USD 1.24 billion for the quarter ended 30 June 2003. The company filed for Chapter 11 bankruptcy protection in October 2000 to address multi-billion dollar claims for damages from asbestos. The company plans to pay asbestos personal injury compensation through a trust that it will fund with the majority of its stock once it is reorganized. According to the lawsuit, Owens Corning set up the national settlement program in late 1998 and reached agreements with various law firms representing large numbers of asbestos claimants. It agreed to pay fixed settlement amounts based on plaintiffs“ illness, and the firms agreed to strongly recommend the settlements to clients, court papers said. In negotiations to secure changes to the loan agreement in order to fund the program, Owens Corning told the banks the settlements would make asbestos claims more predictable and manageable, the lawsuit said. The banks agreed to the amendments that allowed higher leverage ratios on the loans until the end of 2001, on condition that payments under the settlement program did not exceed USD 1.6 billion. Credit Suisse said that by early 2000, Owens Corning was aware it would exceed the USD 1.6 billion limit and made a presentation in March 2000 to lawyers involved in the settlement program, saying the program was “oversubscribed” and exceeded the company“s ability to pay by USD 500 million over three years. However, the company did not share the presentation with the bank lenders and continued to indicate in filings to the Securities and Exchange Commission that increasing asbestos costs would not prevent the company from meeting its obligations, the lawsuit said. Managers also certified to the lenders in writing in April 2000 that the company was not in default on the loan. In the suit, Credit Suisse said there was a default. Credit Suisse said it permitted Owens Corning to continue to draw on the credit line because the company did not disclose its knowledge that it was overextended due to the settlement program. Owens Corning doubled the banks“ exposure on the loan to USD 1.3 billion in only a few months, according to Credit Suisse. Then the company filed for bankruptcy protection in October 2000. The suit asks the court to require amounts drawn on the credit facility between 1 March 2000 and 5 October 2000 be held in trust for the banks and declared not the property of Owens Corning. If the money is not immediately available, Credit Suisse asked the court to allocate the amount for the banks under Owens Corning“s Chapter 11 plan. In its proposed plan, Owens Corning sets out a range of amounts that creditors may expect to recover, depending on the final amount of asbestos claims made against the company. If asbestos claims are near the company“s USD 5.87 billion estimate, bank lenders, bondholders and unsecured creditors could expect to get about 51% of their claims, the disclosure statement said. But if the claims reach USD 24 billion, those groups could only expect about an 18% return, court papers said.

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