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Inspector Clouseau couldn’t nab the Pink Panther, but $5 billion to settle asbestos claims chased his benefactor, Owens Corning, into Chapter 11 bankruptcy in Wilmington, Del. on Thursday. Famed for its pink building insulation, and hence, its use of the cartoon and screen character as its mascot, Owens Corning has had to deal with the shadow cast by the asbestos claims for 20 years. Like Johns Manville Co. and two dozen other companies before it that faced similar woes, Toledo, Ohio-based Owens Corning finally sought Chapter 11 protection. The company was trying to work out claims via the National Settlement Program, or NSP, but it was to no avail. “The cost of resolving current and future claims, together with a flurry of recent new filings from plaintiff lawyers not participating in the NSP, led us to the conclusion that a Chapter 11 was prudent and necessary,” said Glen Hiner, chairman and chief executive. Barry Ridings is leading Owens Corning’s financial advisory team at Lazard Freres while Roger Aaron and Peter Neckles in New York, Ronald Barusch in Washington and Mark Cheli in Wilmington head the company’s outside legal team at Skadden, Arps, Slate, Meagher, & Flom. Owens Corning, battered by the combination of limited access to debt and equity markets and sagging, cyclical demand for building materials, found growing demands on cash flow due to the asbestos-related costs were too much, the company said. Owens Corning made its filing in the U.S. Bankruptcy Court in Wilmington, Del., after its asbestos payments were projected to reach $600 million. “Owens Corning’s debt levels climbed in 1999 due to a $680 million increase in net asbestos claims payments after the company had initially hoped that it would be able to settle the bulk of its backlogged claims,” said Mark Oline, an analyst at Fitch, a Chicago credit rating agency. The company appeared to have worked out claims via the NSP but the increase in claims this year and a downturn in the housing market lowered demand for its primary products, Oline said. “Owens Corning had built a very large backlog of asbestos claims cases that had snowballed the past two years to the extent that the level of claims now restricts their ability to invest and remain competitive with companies not facing this problem,” Oline said. “Owens Corning is a viable company with strong market positions and the ability to generate strong cash flow but they’ve been hurt by the uncanny ability of lawyers to continually find new claimants.” The company last year had Ebitda of $797 million and annual interest payments of $161 million before this year’s increase in asbestos-related claims, Oline explained. Owens Corning has strong market positions across most of its product lines and is the U.S. market leader in residential and commercial insulation. It’s also strong in roofing-related products. But its problems this year are being compounded by higher costs of raw materials and sagging housing demand, he said. The building materials company said it obtained a $500 commitment for debtor-in-possession financing from Bank of America so it can continue operations. Owens Corning listed just under $7 billion in assets and $5.71 in liabilities in its filing and said it would suspend asbestos claims payments until it reorganizes under Chapter 11. Bank of America was listed as the company’s top unsecured creditor with $85 million from a pre-petition credit facility and its largest trade creditor is Johnson Matthey PLC of Wayne, Pa., with a $4.5 million claim. Owens Corning listed in court documents more than 1,000 creditors and said some of its 20,000 employees worldwide own 12.2% of its outstanding shares. About 80% of the company’s more than $5 billion in 1999 sales were tied to building materials such as roofing, vinyl siding, and insulation, with the remainder stemming from composite materials, Oline said. Although the company had ceased selling asbestos insulation back in 1972, a rash of lawsuits were launched against Owens Corning starting in the 1980s and the company was required to take millions of dollars worth in charges against earnings to absorb the cost of the asbestos litigation. Owens Corning had already received 460,000 personal injury claims this summer when it projected another $3 billion in new claims, despite the fact that it stopped selling any asbestos-tainted goods more than 25 years ago. Owens Corning’s stock price plunged from a 52-week high of $22.69 on Oct. 11, 1999 to a 52-week low of $1.81 on Wednesday. It closed Thursday at $2, up 10%. The company is scheduled to have a procedural hearing Friday before Chief Judge Mary Walrath in Wilmington. “Owens Corning was basically tapped out from borrowing any more money and its stock price was too low to get any funding there so they just decided they had to draw the line in the sand,” said Gary Schneider, analyst at Bear, Stearns & Co. in New York. Johns Manville sought bankruptcy court protection in 1982 under similar conditions and emerged from reorganization proceedings in 1988. Pittsburgh Corning Corp. and Babcock & Wilcox Co. are now in Chapter 11 pending reorganization with similar asbestos claims. Copyright (c)2000 TDD, LLC. All rights reserved.

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