Owens Corning: creditor concern over proposed notes

Unsecured creditors of building materials manufacturer Owens Corning are unhappy at what they claim is the company“s failure to provide a clear idea of the prospects for the senior notes many credito…

Unsecured creditors of building materials manufacturer Owens Corning are unhappy at what they claim is the company“s failure to provide a clear idea of the prospects for the senior notes many creditors will receive as payment for their claims in the company“s bankruptcy case. According to the objections by the creditors committee to the disclosure statement outlining the Owens Corning Chapter 11 plan, projected recoveries for creditors in the disclosure are based on the assumption that senior notes the company plans to issue to creditors under its plan will trade at 100% of their face value on their issue date. However, that is unlikely, due to the complexities of the corporate debt market and ratings system, said the objection filed 14 October 2003 with the U.S. Bankruptcy Court in Wilmington, Delaware. A hearing on the proposed disclosure statement that would be sent to creditors with ballots to vote on Owens Corning“s plan was scheduled for 27 October 2003. The committee said the senior notes would likely require a premium interest rate due to the USD 1.4 billion size of the proposed offering and the “newness” of the reorganized Owens Corning, but that will not occur under the formula the company plans to use to set the interest rate. If the notes “have a coupon rate less than what the market requires of similar debt instruments, the senior notes will not have a market value of USD 1.4 billion and the recoveries for creditors receiving notes under the plan will be less than what the proposed disclosure statement estimates,” the court filing said. That risk is not discussed in the disclosure, the objection said. The objection goes on to say that many of the creditors who are to receive notes in settlement of their claims will not have any interest in holding them irrespective of the credit rating they are assigned and will dump the securities, presuming there is a liquid market for the notes. Owens Corning provided a wide range of possible payments to its creditors depending on the amount of asbestos claims ultimately made against it. Should asbestos claims be USD 16 billion, bondholders and unsecured creditors could expect payments equal to about 26% of their claims, the objection said. In a response filed 20 October 2003 to the committee“s concerns, Owens Corning said the objection was better suited as an objection to confirmation of its plan, rather than approval of the disclosure statement. Owens Corning also said there was no formula it could use when setting the interest rate that will eliminate all risks that the notes will trade exactly at face value. Under the proposed plan, the rate will be set three days before the notes are issued. There is an equal chance they will trade above par, Owens Corning said. The company added that it was willing to negotiate adjustments to the procedure to reduce both the risks of undervaluation and overvaluation of the notes to a minimum, but the creditors committee made no attempt to provide comments directly to the company before filing its objection to the disclosure statement.