Armstrong World fourth plan of reorganization denied by court

By Ellen Chang

Houston, Feb. 24 - Armstrong World Industries Inc.'s fourth amended plan of reorganization was rejected Wednesday by the U.S. District Court for the District of Delaware.

The plan was rejected by Judge Eduardo Robreno of the U.S. District Court for the Eastern District of Pennsylvania, who was designated for the matter.

"The court concludes that the distribution of new warrants to the class of equity interest holders over the objection of the class of unsecured creditors violates the 'fair and equitable' requirement" of bankruptcy law, Robreno wrote.

The plan would have created 11 classes of claims and one class of equity interests.

Under the rejected plan's provisions, class 6 or the unsecured creditors with claims of $1.651 billion would have received 59.5% of their claims while the asbestos personal injury claimants, class 7, with claims of $3.146 billion would have recovered 20%. The equity interest holders or class 12, would have been issued new warrants valued at $35 million to $40 million.

A key to the plan lies in the consent of the class of asbestos personal injury claimants to share a portion of its proposed distribution with the equity interest holders, the judge's memorandum on his decision said.

Armstrong said it will decide on its course of action after reviewing the judge's opinion and discussing its options with its advisors and other stakeholders.

The company added that its emergence from bankruptcy will be "substantially delayed."

Armstrong, a Lancaster, Pa.-based flooring company, filed for bankruptcy on Dec. 6, 2000 in the U.S. Bankruptcy Court for the District of Delaware. Its Chapter 11 case number is 00-04471.

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