Court recommends confirmation of Asarco parents' reorganization plan

By Caroline Salls

Pittsburgh, Aug. 31 - The U.S. Bankruptcy Court for the Southern District of Texas has recommended confirmation of the plan of reorganization filed by Asarco LLC parent companies Asarco Inc. and Americas Mining Inc., allowing the parent companies to retain their 100% equity interest in Asarco, according to a Monday court filing.

Specifically, the bankruptcy court said the U.S. District Court for the Southern District of Texas should confirm the parent companies' plan and deny confirmation of Asarco LLC's plan.

Judge Richard S. Schmidt said he decided the parents' plan was superior after taking into account the type of plans, the treatment of creditors, the relative feasibility of each plan, and the preferences of creditors and equity.

"The debtor's plan is overwhelmingly preferred by creditors," Schmidt said in his ruling.

"However, the parent's plan is more likely to pay creditors in full in that it is funded with sufficient cash to pay creditors in full at confirmation, while the debtors' plan relies upon some recovery of the [Southern Peru Copper] judgment."

Schmidt said the parent's plan is not without its flaws, including lack of union support that could result in a "crippling strike" and saddling the company with obligations requiring it to upstream dividends and sales proceeds to pay off the plan funding facility.

However, the judge said Asarco LLC's plan "relies on the good graces" of asset purchaser Sterlite (USA) Inc. and not on any legal commitment.

Schmidt said the parents' plan guarantees performance with a $2.2 billion cash and securities escrow and ultimately pays $2.4799 billion for Asarco's assets while the company's plan only pays $2.1675 billion.

As previously reported, Asarco LLC's plan sells the company's assets to Sterlite for $1.439 billion in cash, plus $722 million to monetize the creditors' interest in the Southern Peru Copper litigation trust.

Meanwhile, under the parents' plan, the parent companies will contribute $2.205 billion in cash, plus a $280 million promissory note to be contributed to an asbestos trust, which is fully secured by a lien on the assets of the reorganized company, 51% of the equity interests in the reorganized company and further guaranteed by the parents' corporate owner Grupo Mexico.

The parent's plan also includes a $200 million working capital facility to fund the reorganized company's operations.

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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