Owens Corning, creditors agree to amended plan terms; bondholders to recover new equity

By Caroline Salls

Pittsburgh, May 10 - Owens Corning has reached an agreement in principle with each of its key creditor groups on the terms of an amended Chapter 11 plan of reorganization, according to a company news release.

If confirmed, Owens Corning said the amended plan paves the way for it to emerge from bankruptcy in 2006.

Parties to the agreement include the official committee of asbestos claimants, the official committee of unsecured creditors, the legal representative for future claimants, the official representatives of bondholders and trade creditors, the ad hoc bondholders committee and the ad hoc equity holders committee.

"We are extremely pleased to have achieved one of our long-standing objectives of developing a consensual reorganization plan that deals fairly and equitably with all creditors and that fully resolves the company's asbestos-related issues," president and chief executive officer Dave Brown said in the release.

Proposed creditor recovery

Under the agreement:

• Existing Owens Corning stock will be canceled, and 131.4 million shares of new stock will be issued with a plan value of $3.942 billion;

• Bank creditors will receive a full recovery of $2.276 billion in cash, including interest calculated as of March 31 and continuing to accrue through the effective date;

• Non-bondholder senior and junior unsecured creditors will receive about $249 million in cash;

• Bondholders will receive equity and asbestos claimants will receive cash and, if the FAIR Act does not become law, some equity;

• Bondholders will receive 26.6 million shares of the reorganized company's stock, and bondholders and some other general unsecured creditors will have the right to purchase 72.9 million additional shares of the reorganized company's stock at $30.00 per share via an equity rights offering.

Owens Corning said it is in the process of finalizing an agreement with J.P. Morgan Securities Inc. to backstop the offering.

The company said it expects J.P. Morgan Securities to syndicate the backstop commitment to interest holders led by D. E. Shaw Laminar Portfolios, LLC.

• Owens Corning and Fibreboard asbestos claimants collectively will receive $2.872 billion in cash, which will be deposited into a trust fund. Owens Corning will assign all rights to any insurance recoveries to the trust;

• Owens Corning and Fibreboard asbestos claimants also will receive a $1.39 billion contingent payment right, which will accrue interest at a rate of 7% from the effective date through the payment date and 28.6 million shares of the reorganized company's stock.

The contingency payment right payment will vest if the FAIR Act proposed federal asbestos legislation setting up a national trust fund is not enacted within 10 days of the conclusion of the 109th Congress.

If the FAIR Act is enacted within that timeframe, the contingent payment right will be canceled and the cash and shares will not be transferred to the trust;

• Holders of Owens Corning 6.5% convertible monthly income preferred securities (MIPS) will receive warrants to purchase 10% of the fully diluted shares of the reorganized company, at an exercise price of $43.00 per share.

The warrants can be exercised within seven years of the effective date;

• Existing holders of Owens Corning stock will receive warrants to purchase 5% of the fully diluted shares of the reorganized company, at an exercise price of $45.25 per share.

If the FAIR Act is enacted into law and the contingency payment to asbestos claimants is not made, existing Owens Corning shareholders and holders of MIPS would have the right to exchange their warrants for 14.75% and 5.5% of the fully diluted shares of the reorganized company.

Valuation details

According to the release, the agreement sets Owens Corning's total enterprise value at emergence at $5.858 billion, including $3.942 billion of new equity, $1.8 billion of new debt financing, $55 million from existing debt at non-debtor Owens Corning entities and $61 million in new tax notes.

The agreement assumes a total recovery value of $8.576 billion, consisting of the total enterprise value of $5.858 billion, assumed excess cash of $1.250 billion and Fibreboard trust and asbestos trust assets of $1.622 billion, less existing debt of $55 million and $99 million in assumed value of new shares reserved for employee incentive programs.

The company said it will file an amended plan of reorganization and disclosure statement to reflect the terms of the agreement. A disclosure statement approval hearing is set for July 10.

Owens Corning, a Toledo, Ohio, building materials company, filed for bankruptcy on Oct. 5, 2000 in the U.S. Bankruptcy Court for the District of Delaware. Its Chapter 11 case number is 00-3837.

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