Owens Corning to take $538 million expense for bank debt after substantive consolidation reversal

New York, Oct. 24 - Owens Corning said it will record expenses totaling $538 million for its pre-bankruptcy bank debt following the reversal by the U.S. Court of Appeals for the Third Circuit of an order allowing substantive consolidation.

The expense is made up of $531 million for interest on the credit facility from Oct. 5, 2000, the date the company filed for Chapter 11, through Sept. 30, 2005 plus $7 million for other post-bankruptcy fees. It will show in the period ended Sept. 30, 2005, according to an 8-K filing with the Securities and Exchange Commission.

Owens Corning said it that it decided to record the expense because, in the light of the appeals court decision, it is "probable" that the costs will be payable by the company and some of its subsidiaries.

Interest on the loan is at base rate plus 200 basis points.

The company noted, however, that it may object to the figure and the amount may also be reduced through negotiation in its bankruptcy proceedings.

Owens Corning also said that the appeals court's reversal of the substantive consolidation order is expected to result in "significant modifications" to its plan of reorganization and may affect how much the various classes of creditors receive.

As previously reported, on Aug. 15 the U.S. Court of Appeals for the Third Circuit overturned Owens Corning's use of substantive consolidation, calling the legal maneuver "a ploy to deprive one group of creditors of their rights while providing a windfall to other creditors."

The company had obtained approval from the U.S. Bankruptcy Court for the District of Delaware in October 2004 to treat the parent and subsidiaries as a single unit. At the time, judge John Fullam described it as "a virtual necessity."

After the October ruling, Credit Suisse First Boston, the agent bank for the company's lenders group, appealed, saying the ruling was a big setback to the group of 43 banks, led by CSFB, which fought against consolidation in pressing their claim that their approximately $1.6 billion in loans to the parent company and its units had priority over the claims presented by the bondholders and other creditors.

Owens Corning, a Toledo, Ohio, building materials company, filed for bankruptcy on Oct. 5, 2000. Its Chapter 11 case number is 00-3837.

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