Saturday, January 20, 2007

Owens Corning to Pay $5.2 Billion to Asbestos Victims

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Owens Corning, the world's largest maker of insulation products, said it will pay $5.2 billion to asbestos victims and $2.5 billion to creditors in a settlement that would let the company exit bankruptcy this year.

The settlement, if approved by a U.S. bankruptcy judge, would create a company worth about $5.9 billion when it emerges from bankruptcy, including about $3.9 billion in new equity and $1.8 billion of new debt financing. The current stock will be cancelled. The payment to the victims would resolve more than $10 billion in asbestos-related claims.

"The path to justice for victims of asbestos cancer and asbestos poisoning by Owens Corning has been a long and difficult one," said John D. Cooney, of the Chicago law firm of Cooney & Conway, who represented asbestos victims. "Although nothing can ever repair the loss of lives, today's settlement represents a fair resolution for both the victims and Owens Corning."

The agreement requires that Owens Corning pay $4.29 billion in cash into an asbestos victims' trust plus 28.6 million shares in the company once it emerges from bankruptcy, Cooney said.

Toledo, Ohio-based Owens Corning is one of more than 70 U.S. public companies that have sought bankruptcy protection since the early 1980s to deal with asbestos suits. Asbestos, a heat-resistant material used in insulation, auto parts and construction products, causes respiratory illness. Prolonged exposure to the fibrous mineral has been linked to a rare form of cancer.

Shares Rise

The settlement is structured so that, if the current Congress passes legislation to bail out former asbestos makers from liability, Owens Corning may not have to make all of the payments, the company said in a statement.

Owens Corning stock rose 81 cents, or 87 percent, to $1.74 in over-the-counter trading at 2:36 p.m. New York time.

The company's 7.5 percent notes due in 2018 soared 14 cents on the dollar to 115 cents, the yield falling 162 basis points to 5.56 percent, according to Trace, the price reporting service of the NASD. The bond was the second most heavily traded issue among institutional investors with 65 trades of more than $1 million at 1:45 p.m. in New York.

Owens Corning's income from operations rose to $452 million in 2004 from $300 million in 2002, the company said in bankruptcy reorganization papers filed on Dec. 31, 2005. Owens Corning reported May 2 that it had net income of $63 million in the first quarter of 2006, compared with a $4.2 billion loss in the same period in 2005.

Debt Holders

Under the reorganization plan, holders of about $1.5 billion in debt will get as much as $2.27 billion, including interest, the company said in a statement.

Current Owens Corning stock holders will receive warrants to buy 5 percent of the fully diluted shares of the reorganized company, at an exercise price of $45.25 per share, the company said. The warrants can be exercised within seven years of the effective date, the company said.

U.S. Bankruptcy Judge Judith K. Fitzgerald scheduled a hearing for July 10 to review a disclosure statement that outlines the plan, the company said.

"Reaching this important agreement with our key creditors will enable Owens Corning to move toward emergence from Chapter 11 in a timely manner,'' said Michael H. Thaman, chairman of the board and chief financial officer, in a statement.

Owens Corning had record sales in 2005 of $6.32 billion, up 11 percent from the previous year.

Compensation Costs

The head of the Congressional Budget Office told lawmakers Nov. 17 that the total costs of compensating asbestos victims may reach $150 billion. Senators are pushing for the creation of a fund to pay asbestos claimants and free companies from future liability on such claims.

Along with Owens Corning, companies such as W.R. Grace & Co., Federal Mogul Corp, USG Corp. and Armstrong World Industries Inc. filed for Chapter 11 protection in Delaware since 2000 to set up plans to wipe out their asbestos liabilities.

USG, the No. 1 maker of gypsum wallboard, agreed on Jan. 30 to pay as much as $3.95 billion to settle asbestos liability claims and emerge from 4 1/2 years of bankruptcy.

Before USG and Owens Corning settled, the biggest payment to asbestos victims was the $3.15 billion paid by Johns-Manville in 1987, said Stephen J. Carroll of the Rand Corp., which published a report on the issue in 2005.

W.R. Grace spokesman Greg Euston said the company is still in settlement discussions with asbestos victims. Federal Mogul spokeswoman Marie Remboulis and Armstrong spokeswoman Dorothy Brown Smith didn't immediately return phone calls.

Settlements Happening

"The fact that this has settled and it's so big and so complex has sent a signal to everybody that settlements are going to happen more quickly," said Charles Tatelbaum, a lawyer with Ft. Lauderdale, Florida's Adorno & Yoss. Tatelbaum, a former vice president of research for the American Bankruptcy Institute, has represented creditors in asbestos-related cases in the past. "The view is now that Congress isn't going to do anything, so they're settling," Tatelbaum said about the federal bill proposing an asbestos fund.

Ad Campaign

Owens-Corning, formed as a joint venture in the 1930s by Corning Glass Works and Owens-Illinois Glass, was spun off in 1949 in the aftermath of an antitrust suit filed by the U.S. government.

The company is best-known for its advertising campaign featuring the Pink Panther cartoon character pushing its line of home insulation.

"Although we are pleased with the outcome of this settlement, it is an appropriate time to remember that countless lives were lost or destroyed as a result of the needless use of asbestos containing products," Cooney said in his statement.

The case is: No. 00-3837, U.S. Bankruptcy Court in Wilmington, Delaware.

To contact the reporters on this story:

Bob Van Voris in New York at

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