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Owens Corning seeks to stop lenders from declaring default

Owens Corning is seeking a court order preventing a group of its lenders from exercising their rights and declaring defaults under a US$ 1.8 billion credit agreement entered into in 1997.
The company…

Owens Corning is seeking a court order preventing a group of its lenders from exercising their rights and declaring defaults under a US$ 1.8 billion credit agreement entered into in 1997. The company filed a lawsuit in the bankruptcy court, also known as an adversary proceeding, asking for declaratory and injunctive relief. Owens Corning managed to secure a temporary restraining order, effective immediately, designed to protect the company“s foreign subsidiaries not covered under the company“s Chapter 11 filing. The order gives Owens Corning some time to work out a deal with the syndicate of banks led by Credit Suisse First Boston. The lawsuit asks the court to enjoin a group of banks, led by Credit Suisse First Boston, from declaring any of Owens Corning“s nonbankrupt subsidiaries in default under any separate banking agreements. The company recently said it wanted to prevent the bank and other creditors from “calling, canceling, or revoking” credit facilities to its foreign subsidiaries. The lawsuit also seeks to prevent the banks from accelerating the payments under any separate banking agreements. According to Owens Corning“s petition, “The global nature of Owens Corning“s businesses, interlocking credit facilities, cross guarantees of such, and other facilities militate that “the banks“ be temporarily restrained from defaulting credit facilities around the world, and dooming these Chapter 11 cases to fail. “Such an order will allow Owens Corning time to contact the banks“ other creditors, and other banks for foreign subsidiaries and joint ventures, to assure those creditors that payment of obligations to them will continue in the ordinary course and will not be disrupted by Chapter 11 proceedings in the US,” Owens Corning said in court documents. In the lawsuit, Owens Corning says that if the lenders exercise their rights and freeze or seize its subsidiaries“ cash assets, it would deplete their operating capital and threaten their ability to remain solvent. Owens Corning says that its non-bankrupt subsidiaries“ uninterrupted use of their bank accounts with the lenders is essential to their operation. Owens Corning says that a disruption in its subsidiaries“ bank accounts and credit lines would “have an adverse affect on Owens Corning“s global supply and distribution network, and the enterprise value of Owens Corning and its subsidiaries, as a whole.” According to the loan documents, an event of default occurs when any borrower under the loan files for voluntary bankruptcy, which in turn means that amounts owing under the loan may be declared immediately payable. Recently, Owens Corning and 17 affiliates filed for protection from creditors under federal bankruptcy laws to help it cope with asbestos-related lawsuits that have cost the company US$ 3.1 billion. The supplier of building and industrial materials estimated in July it faced an additional US$ 3 billion in asbestos payouts even though it stopped selling asbestos products more than 25 years ago. The voluntary Chapter 11 filing in Wilmington, Delaware, would allow the company to develop a plan of reorganization that would resolve its asbestos liabilities while allowing it to continue operating its businesses, the company said. Owens Corning had put in place an innovative plan to settle thousands of asbestos claims against the company in an out-of-court process. Under the plan, it promised to pay US$ 2.4 billion over five years. But during the bankruptcy-court proceeding on Thursday, Toledo, Ohio-based Owens Corning did an about-face and said it won“t make payments to asbestos claimants. In addition, the company, which has obtained a US$ 500-million debtor-in-possession financing commitment from Bank of America Corp. (BAC), said it won“t make quarterly dividend payments, interest or other payments on its unsecured debt securities, choosing instead to focusing on reorganization plans. Owens Corning has paid more than US$ 5 billion for asbestos claims since 1972 and said it faces another US$ 3.8 billion in unpaid accrued asbestos liabilities. As of June 30, the company has US$ 2.7 billion in long-term debt. In the bankruptcy filing, Owens Corning said it has just under US$ 7 billion in total assets and US$ 5.7 billion in total debts. Owens Corning, best known for ads for its insulation products featuring the Pink Panther cartoon character, has made payouts to 440,000 people who said asbestos made them ill. Owens Corning has said that while its employees will continue to be paid in the normal manner and their health benefits will not be disrupted, it will not make its quarterly dividend payment in October, nor will it make any interest or other payments on its unsecured debt securities. The company also said it won“t make payments to asbestos claimants for the duration of the Chapter 11 proceeding. The company“s filing follows a path taken by at least 25 companies that once made asbestos. Pittsburgh Corning Corp. in April reorganized with US Bankruptcy Court protection because it faced 140,000 asbestos exposure claims. Babcock & Wilcox Co. in February did so to resolve about 45,000 claims pending against it. Johns Manville Corp. sought protection bankruptcy protection in 1982 when it was faced with suits from people sickened by asbestos. It emerged from bankruptcy protection in 1988. Despite the mounting claims against Owens Corning, the company as recently as July promised it would stay the course and continue payments to people who suffered asbestos-related illnesses. But in recent months the company“s stock has dropped below US$ 2 per share from a high of US$ 41 per share in May 1999 and it was dropped from Standard & Poor“s 500 index on 30 September. Asbestos payments this year were expected to reach US$600 million – more than Owens Corning expects to get in sales from its building products. Nearly two years ago, it announced an agreement to pay US$ 1.2 billion to settle most of its asbestos lawsuits. The company said the settlement wiped away 176,000 cases and put it within sight of freeing itself from the cost of the lawsuits. Owens Corning is reportedly trying to recoup some of the money it has paid through pending lawsuits filed against every major tobacco company in the US. The comapny has maintained that smokers exposed to asbestos have a higher risk of developing diseases than nonsmokers exposed to the material.

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