Owens Corning: extension to exclusivity in face of bondholder opposition

Owens Corning defeated a group of large creditors when it won an extension of its exclusive Chapter 11 plan rights on 30 January 2006.
Bondholders had pushed for a Chapter 11 plan that would take acc…

Owens Corning defeated a group of large creditors when it won an extension of its exclusive Chapter 11 plan rights on 30 January 2006. Bondholders had pushed for a Chapter 11 plan that would take account of the prospect of federal legislation that would relieve the company of its asbestos liabilities. However, US Bankruptcy Judge Judith Fitzgerald Fitzgerald said she saw no reason to compel Owens Corning to include the possibility that Congress will act to establish a national asbestos trust into its own bankruptcy reorganization strategy. The legislation is “nothing more than a wish and a prayer,” Fitzgerald said. The judge also said she saw no evidence Owens Corning“s current shareholders will obtain anything from the Chapter 11 case. She rejected an attempt by a panel of equity holders to have an official committee representing their interests appointed in the case. The judge said the Chapter 11 plan filed on 31 December 2005, appeared to be “confirmable,” a sign that the company“s latest strategy could pass confirmation hearings later in 2006. Owens Corning“s Chapter 11 proposal contains no provision for current shareholders, and no option linked to assistance in the form of federal legislation. Holder of bank debt, on the other hand, could recover an estimated 150% of the almost USD 1.5 billion face amount of bank debt, thanks to a favorable appeal court ruling in 2005. Going into the 30 January 2006 court hearing on exclusivity, Owens Corning faced opposition from two groups of bondholders, each demanding the right to present their own Chapter 11 proposals. The company was supported by attorneys for claimants of asbestos damages and holders of about 46% of Owens Corning“s bank debt. In the event, the company won, and Fitzgerald said the bondholder crossover camp could face sanctions for improperly campaigning for their own Chapter 11 exit strategy. If Congress moves to enact national asbestos trust legislation before Owens Corning emerges from Chapter 11, equity holders can make another request for an official shareholder panel, the judge said 30 January. Fitzgerald also said she would withhold judgment on a request by shareholders to take legal action to force a shareholder meeting until after the fate of the national asbestos trust legislation is known. Without legislation, Owens Corning“s shareholders have no hope of recovery, the judge said. Only companies that are able to pay all their debts in full are allowed to offer equity holders anything under a Chapter 11 plan: a rare event and unlikely in the case of Owens Corning, according to the judge. Shares in Owens Corning have been trading vigorously for over a year, with price highs apparently linked to hopes of a federal trust scheme. Attorney Anthony Gray, who argued in court for the appointment for an equity panel, said the court should factor Owens Corning“s market capitalization into its assessment of whether there is enough equity in the company to prevent shareholders from losing everything. Based on recent trading, the market thinks Owens Corning will have USD 235 million in equity value for common shareholders and USD 84 million for preferred shareholders, he said. “With respect to the market price issue, there has been no evidence of anything other than people buying what amounted to lottery tickets on the FAIR Act,” said Peter Van N. Lockwood, attorney for asbestos claimants, referring to the acronym for the national asbestos trust legislation. A hearing to consider the adequacy of the disclosure statement that outlines Owens Corning“s Chapter 11 exit plan for shareholders has been scheduled for 5 April 2006.