Owens Corning's bank debt fell 11 points to the 75-77 range as lenders fear the judge overseeing its bankruptcy case will rule against their interests. A hearing between attorneys representing the company and debt holders was held last Monday to decide whether Owens Corning's assets and debt will be consolidated under one entity. Judge John Fullam had not ruled as LMW went to press.
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 have been claiming 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 claim they have full recovery," Rahl stated. Bondholders and trade creditors have approximately $1.7 billion in claims. A source on the lender side countered, "When we lent them the money, we lent the money to different subsidiaries. By consolidating the debt they are attempting to get out of what they owe us."
"It's a matter of priority. Without substantive consolidation the bank debt would fall ahead of the bondholders," a trader explained. "With it, basically everybody is in the same boat and the lenders' recovery would be reduced." Under this scenario bank debt recovery would only be about 60-70 cents on the dollar (LMW, 8/18). An Owens Corning spokesman did not return calls regarding the hearing.
Fullam is overseeing the case after judge Alfred Wolin was recused last May from cases involving Owens Corning, USG Corp. and W.R. Grace & Co. The removal was requested by Kensington International and Springfield Associates, Owens Corning's largest lenders, which claimed there was a conflict of interest regarding two consultants appointed by Wolin. The motion was backed by Credit Suisse First Boston, the agent bank for the lending syndicate.
The latest move is significant as Owen Corning's pro rata had climbed over 10 points to the 86-90 range after a tentative agreement was reached between Democrats and Republicans to resolve long-standing asbestos litigation. Additional trading on W.R. Grace and Federal-Mogul Corp.'s bank debt took place on the back of Owens Corning's rise, though these names have not dropped with Owens Corning. W.R. Grace's pro rata was seen trading above par in the 99-101 range. Meanwhile, Federal-Mogul's debt was quoted in the low 90's context.
Spokespeople for W.R. Grace and Federal-Mogul did not return calls. An USG spokesman declined comment.