Owens Corning dismisses creditors' objections that interest rate mechanism is flawed

By Carlise Newman

Chicago, Oct. 21 - Owens Corning suggested the bankruptcy court dismiss the objections of its unsecured creditors committee to its reorganization plan, including their claim that the proposed mechanism to determine the interest rate on the new senior notes is flawed.

The company said there is no formula that can eliminate all risk that the senior notes may trade slightly below or above par.

The committee objected to the company's disclosure statement, and said the mechanism to set the interest rate on the senior notes will result in the notes trading at less than par, reducing their recovery.

The creditors also said the disclosure statement offers oversimplified estimates of percentage recoveries for classes 4, 5, 6A and 6B. Separately, on Monday the creditors filed a motion seeking a trustee to preside over the bankruptcy case, saying that the company was not living up to its duty to act in the interest of all creditors.

In their objection, 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.

But Owens Corning said in a filing with the United States Bankruptcy Court for the District of Delaware that the mechanism in the disclosure statement creates no more risk that the notes will trade under par than they will trade over par. The committee's objection fails to acknowledge that an equal number of outcomes might result in a trading price slightly above par.

"The OCUC [creditors' committee] previously objected to exhibit E when it provided that the debtors would rely on Lazard's expertise and utilize a non-formulaic approach. Now they argue that the procedure is too simplistic," Owens Corning said in the filing.

Owens Corning also said the objection is framed not as an objection to the disclosure statement and does not request that the committee's position be set forth in the disclosure statement. The disclosure statement is required to do no more than summarize the position of the committee that the procedures in the statement may not adequately assure that the senior notes will trade at or near par and that the committee reserves the right to object to confirmation of the plan on that basis.

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