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| Andrew Rahl |
Lenders are hoping that Owens Corning's bank debt can recover after taking a serious hit last week when Judge John Fullam ruled that all the company's assets and debt would be consolidated under one entity in what is known as substantive consolidation. The bank debt, comprising $1.6 billion, has dropped from the mid-80s a month ago and is now quoted in the 69-71 context. 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 the ruling was "a clear rejection of lender claims that they were structurally senior to other unsecured creditors." Rahl added that it is a great victory for the bond holders and the trade creditors. But he noted he is also aware that "this case is far from over."
There is still time on the clock because regardless of the ruling, when the actual recovery is settled bank debt holders could still be entitled to some partial security from guarantees on the debt. "It looks like the Judge left the door open for further negotiations," one trader said. "I am convinced that this is not necessarily an all-or- nothing issue," Fullam said in his ruling. "In the course of the plan-approval proceedings, the parties may come to the realization that the existence of the subsidiary guarantees does not warrant treating the banks as if their claim was secured, and thus superior to the claims of all other unsecured creditors; but that the existence of the subsidiary guarantees might warrant treating the bank claims as if they were partially secured," stated Fullam.
According to the trader, lenders could still have some security with claims that would not be pari passu with the debt holders. Bank debt holders are now expected to contest or appeal the Judge's decision, he added.Kensington International and Springfield Associates--affiliates of hedge fund Elliott Management--and Angelo, Gordon & Co. are Owens Corning's largest lenders. Credit Suisse First Boston is the agent bank for the lending syndicate and opposed consolidation. An Elliott spokesman declined comment. An Owens Corning spokesman did not return calls. CSFB and Angelo Gordon officials declined comment.
Even if lenders do get something back, Rahl still sees the ruling as significant. "It is also an important ruling because it is the first time we have a major ruling about a major multinational company like this where the dispute over [substantive consolidation] was not settled...and I think there will be more." He clarified that this could affect both asbestos and non-asbestos related companies in bankruptcy.