Judge permits substantive consolidation in Owens Corning case

By Jeff Pines

Washington, Oct. 5 - Judge John Fullam approved substantive consolidation calling it "a virtual necessity" in Owens Corning's Chapter 11 case, which means a group of creditors led by Credit Suisse First Boston will not be given priority over other creditors.

The decision was filed with the U.S. Bankruptcy Court for the District of Delaware Tuesday.

The banks agreed to lend the Toledo, Ohio-based building materials company $2 billion with guarantees by Owens Corning and its subsidiaries. When the company filed for bankruptcy it owed the bankers $1.6 billion.

The bankers contend their claim deserves preference over other creditors because their claims were guaranteed by the parent and its subsidiaries, not just the parent.

CSFB argued that the subsidiaries were essentially independent and therefore its claims should have priority. But after looking at the evidence, Fullam decided that he had "no difficulty" in determining that Owens Corning and its subsidiaries were essentially a single operation.

"All of the subsidiaries were controlled by a single committee, from central headquarters, without regard to the subsidiary structure," he said.

Another reason for his ruling was that the officers and directors of the subsidiaries did not create separate business plans for their companies or budgets and that the central committee decided who would run the subsidiaries.

Furthermore, "No subsidiary exercised control over its own finances," the judge said.

Consolidating the claims would simplify and hasten Owens Corning's reorganization and avoid trying to untangle the finances of the different units, Fullam said.

The bankers also relied on all of Owens Corning's credit and all of the company's financial reporting was done on a consolidated basis, and the banks really had very little information about the individual subsidiaries, Fullam said.

Owens Corning filed for bankruptcy Oct. 5, 2000 over asbestos claims. Its Chapter 11 case number is 00-03837.

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