Owens Corning creditors object to disclosure statement, say new notes' interest rate may be too low

By Carlise Newman

Chicago, Oct. 15 - Owens Corning's committee of unsecured creditors have objected to the company's disclosure statement, saying the mechanism that will be used to set the interest rate on the senior notes they will receive could result in the notes trading at less than par.

"It is indisputable that the mechanism contemplated in the senior notes term sheet to set the interest rate on the senior notes almost certainly will not result in the senior notes trading at par value," the creditors said in a filing with the United States Bankruptcy Court, District of Delaware. "This risk - a risk shared by all creditors receiving senior notes under the plan - is nowhere discussed or disclosed in the proposed disclosure statement."

Because of this issue, the creditors said the disclosure statement offers oversimplified estimates of percentage recoveries for classes 4, 5, 6A and 6B in the company's Chapter 11 case.

Specifically, the creditors said the disclosure statement sets forth estimates of percentage recoveries under the plan that assume the senior notes to be issued to creditors in classes 4, 5, 6A and 6B will trade on the date of issuance at par.

But the creditors say that in order for the notes to have a market value equal to their face value their rate must be adequate relative to the market at the time of issuance.

The interest rate will be set according to a formula described in appendix E of the disclosure statement; the creditors claim it is inadequate to assure that the notes will carry a market rate of interest and add that the plan contains no method for aggrieved creditors to invoke the power of the court to remedy an inadequate interest rate.

Because it fails to disclose the risks in the interest-rate formula and so sets forth oversimplified, possibly false estimates of percentage recovery, the disclosure statement is false and misleading, the creditors argue.

The senior notes will be issued to certain classes of creditors as part of the consideration they receive under the plan. The creditors said that to the extent that the notes trade in the open market below their par value of $1.4 billion, the creditors receiving the notes will receive a distribution that is less than that estimated in the disclosure statement.

Under the reorganization plan, bank debt holders, with $1.5 billion in claims, will receive a recovery ranging between 60.2% and 38%. Bondholders, with $1.3 billion in claims, and unsecured claims holders, with $375 million in claims, will receive a recovery ranging between 45.4% and 15.1%.

Owens Corning asbestos personal injury class A claims holders were estimated to have claims from $3.56 billion to $16 billion with recovery from 47.9% to 15.9% respectively.

Fiberboard Corp. asbestos personal injury claimants were estimated to have claims between $2.3 billion and $7.9 billion, with recovery from 66.3% to 19.3% respectively.

Equity holders will receive nothing.

If bank debt holders do not accept the plan, the estimated recovery for bank debt holders, bondholders, and unsecured claims holders ranges between 48.7% and 16.8%.

Under that scenario, Owens Corning asbestos personal injury claimants will receive between 51.1% to 17.7% recovery. Fiber Board Corp. asbestos personal injury claimants will receive between 66.3% and 19.3% recovery. Fiber Board asbestos property damage claimants will be paid in full regardless of scenario.

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