Asarco, parent disclosure statements both approved; plan confirmation hearing begins Nov. 17

By Jennifer Lanning Drey

Portland, Ore., Sept. 23 - Asarco LLC and its parent company, Asarco Inc., both obtained court approval for the separate disclosure statements for their competing plans of reorganization Tuesday, according to an Asarco LLC news release.

As previously reported, the parent company plan is co-sponsored by Americas Mining Corp.

The plan confirmation hearing is scheduled to begin Nov. 17.

If the U.S. Bankruptcy Court for the Southern District of Texas finds that both plans are confirmable, it will consider the preferences of creditors expressed in the voting process in order to determine which plan to confirm, according to the release.

"The plans are markedly different," Joseph F. Lapinsky, president and chief executive officer of Asarco LLC, said in the release.

"Our parent's proposal is a time-consuming litigation plan, as our major creditors have repeatedly stated. Ours, by contrast, is a comprehensive settlement plan."

As part of the global settlement included under Asarco LLC's plan, the company will give $1.6 billion in cash plus interests in a litigation trust to federal and state governments to pay its share of environmental liability at over 75 sites across the country.

As previously reported, Asarco LLC's plan implements the previously announced sale of Asarco's operating assets to Sterlite (USA), Inc. a subsidiary of Sterlite Industries (India) Ltd. and Vendanta Resources plc.

According to the disclosure statement, the majority of the proceeds from the sale, together with distributable cash and subsequent distributions, will be paid to creditors under the plan.

An asbestos trust will be established under the plan for the benefit of holders of unsecured asbestos personal injury claims and demands.

The trust and the holders of residual environmental claims will each receive 50% of the interests in a litigation trust, according to the disclosure statement, and these creditors have agreed that litigation proceeds can first be paid to holders of non-priority unsecured claims until their claims are paid in full.

The next $100 million of the litigation proceeds will be paid to the asbestos trust, with half of the proceeds to be paid to trust creditors and half to holders of residual environmental claims.

Plan creditor treatment

Under the Asarco LLC plan:

• Holders of administrative priority claims, priority tax claims and priority claims will be paid in full;

• Secured claims will either be paid in full or reinstated, at the company's option;

• Bondholder claims will either be reinstated or will be treated the same as general unsecured claims, at Asarco's option;

• Non-priority unsecured claims, except for unsecured asbestos personal injury claims and some environmental claims, will be paid in full, plus interest at the federal judgment rate;

• Unsecured asbestos personal injury claim and residual environmental claim classes will receive $750 million each, as well as a $102 million supplemental distribution;

• Holders of interests in Asarco will receive any remaining funds available after all other claims have been paid in full; and

• Holders of interests in the Asarco subsidiary debtors or other subsidiary debtors will receive no distribution under the plan.

Competing plan details

Under the parent company's plan, Asarco Inc. would retain its equity interest in Asarco LLC, and Asarco would continue its operations as a going concern.

The plan calls for the parent company and Americas Mining to fund the company's reorganization with a $2.7 billion contribution, plus a $440 million guarantee by Americas Mining. The contribution and guarantee will be used in conjunction with roughly $1 billion of Asarco LLC's cash on hand and other assets to fund plan distributions.

Asarco and Americas Mining previously said the total consideration to be provided under their plan is $6.73 billion, which exceeds the $5.7 billion high value of claims that Asarco LLC estimates will ultimately be allowed.

Also under Asarco Inc.'s plan, the holders of asbestos personal injury claims can elect to resolve their claims through the establishment of a section 524(g) trust.

If the section 524(g) trust is not established, an asbestos claims trust will be established to pay the asbestos personal injury claims, which will remain liabilities of the reorganized company.

If the court rules that the primary asbestos treatment does not leave holders of the asbestos personal injury claims unimpaired, the claims will be reinstated and paid from a disputed claims reserve when they are ultimately allowed.

Asarco, Inc. creditor treatment

Treatment of creditors under the Asarco, Inc. plan will include:

• Holders of administrative claims, priority claims, priority tax claims, toxic tort claims, previously settled environmental claims, miscellaneous environmental claims, late filed claims, subordinated claims and trade and general unsecured claims will recover 100% in cash;

• Holders of secured claims will recover 100% either in cash, through the return of the collateral securing the claim or through reinstatement of the claim;

• Bondholders will recover 100% either through payment in full or reinstatement of the claim;

• Holders of asbestos personal injury claims will recover 100% under one of three options. If at least 75% of these creditors elect the section 524(g) treatment, they will be paid in full through that trust. If at least 75% do not elect the 524(g) treatment and the court establishes the allowed amount of claims in this class, claimants will be paid from an asbestos personal injury trust. If the court does not deem the creditors unimpaired, the claims will be reinstated to be paid from a disputed claims reserve following allowance;

• Holders of reinstated environmental claims will have their claims reinstated to be assumed and paid by the applicable reorganized debtor; and

• Holders of the interests in Asarco and the other reorganizing debtors will retain their interests, which will be converted into interests in the applicable debtor on the plan effective date.

Asarco, a Tucson, Ariz., mining company, filed for bankruptcy on Aug. 9, 2005. Its Chapter 11 case number is 05-21207.

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