Owens Corning’s bank debt has fallen to the 60-65 range after Judge John Fullam ruled that all the bankrupt company’s assets and debt would be consolidated under one entity, a sellside trader said. The debt dropped 11 points to the 75-77 range two weeks ago when lenders began to fear that the judge would rule against their interests (LMW, 9/24). Trading in the name is expected to be active this week. “Bondholders won,” said the trader.
A hearing between attorneys representing the company and debt holders was held Sept. 20 to decide on the matter, known as substantive consolidation. At the time, Andrew Rahl, head of the bankruptcy and restructuring practice group at Anderson Kill & Olick, and a counsel to the bondholders and trade-claims holders, said as long as the bank lenders are not structurally senior, creditors, bank debt, bonds and trade-claim holders' claims should have the same value.
The banks claimed that because they have guarantees they have claims against the subsidiaries’ assets that are worth $1 billion which are structurally senior to those of the other creditors. Since the bank debt is $1.5 billion they claimed they have full recovery, Rahl stated. Bondholders and trade creditors have approximately $1.7 billion in claims.
Reportedly, Fullam has now urged settlement talks in the case. Kensington International and Springfield Associates—affiliates of hedge fund Elliott Management—are Owens Corning's largest lenders. An Elliott spokesman declined comment. One source close to bank debt holders said the decision was not a surprise, but said the lenders still have options available to them. Credit Suisse First Boston is the agent bank for the lending syndicate.