Owens Corning, the largest US building materials maker, has filed for bankruptcy, succumbing to the growing weight of its multibillion-dollar asbestos liability.
The 62-year-old company, best known f…
Owens Corning, the largest US building materials maker, has filed for bankruptcy, succumbing to the growing weight of its multibillion-dollar asbestos liability. The 62-year-old company, best known for its Pink Panther Fiberglas insulation, said its hand had been forced by a decline in the building materials business on top of its asbestos woes. The bankruptcy filing by Owens Corning and 17 of its units, in US Bankruptcy Court in Wilmington, Delaware, listed assets of US$ 7 billion and liabilities of US$ 5.7 billion. Owens Corning said it is the 23rd company to file for protection from creditors under the US Bankruptcy Code in connection with asbestos claims. Asbestos was used widely in building materials after World War II, but was later found to be a cancer-causing agent. The first of the big building materials companies forced into bankruptcy by asbestos-related claims was Johns Manville, in 1982. It emerged from bankruptcy four years later and became a public company again in 1990. Owens Corning“s asbestos problems stem from a pipe insulation product, trade-named Kaylo, distributed from 1952 to 1972. The company says total revenues from the sale of the product were about US$ 135 million, and to date it has paid out or agreed to pay out more than US$ 5 billion in asbestos claims. It says it has received more than 460,000 asbestos personal injury claims. “Until very recently, we thought Chapter 11 could be avoided,” CEO Glen Hiner said. “First we tried to resolve cases in individual out-of-court settlements, and then we sought legislative and judicial relief. Finally, we made substantial progress in the management of our asbestos liability with our National Settlement Programme (NSP). “However, the cost of resolving current and future claims, together with a flurry of recent new filings from plaintiff lawyers not participating in the NSP, led us to the conclusion that a Chapter 11 reorganization was prudent and necessary.” Under the NSP, the company established a US$ 1.4 billion asbestos reserve in 1998. Owens Corning previously said its ability to meet its schedule of asbestos-related payments and its obligations under bank credit agreements depended, in part, on its business not deteriorating significantly. But it said its earnings from operations had been severely hurt by the decline in demand for building materials, which reflects in large part rising interest rates, and higher costs the company has been unable to fully recapture with price increases. Owens Corning spokesman Bill Hamilton said higher interest rates have a double impact – reduced building activity and increased interest payments. Hamilton said demand for the company“s building materials – 80 percent of which go to home remodelling – had fallen to the lowest level in five years. He also said production of the company“s leading products – asphalt shingles, Pink Panther insulation and vinyl siding – requires the use of large amounts of oil and natural gas, whose prices are sky high. The company“s costs are now at their highest level since the Gulf War 10 years ago. Owens Corning said it had obtained a US$ 500 million debtor-in-possession financing commitment from Bank of America to provide liquidity during the bankruptcy process. The company is seeking protection from its creditors while it tries to reorganize its operations. If the bankruptcy court approves, at a hearing scheduled for Friday in Wilmington, the US$ 500 million will be available to the company to help meet its funding needs and fulfil obligations associated with operating its business, including payments to suppliers and vendors for goods and services provided after the bankruptcy filing. Due to the filing, the company said, it will not make the quarterly dividend payment scheduled for October 13. In addition, it will not make any interest or other payments on its unsecured debt securities or payments to asbestos claimants for the duration of the Chapter 11 proceeding. Hamilton said Owens Corning will also delay, until November 14, its report of third-quarter financial results. Owens Corning“s bankruptcy filing listed more than US$ 1.4 billion in unsecured bond claims with more than 500 holders, and about 14 bank claims totalling US$ 870 million.