USG files amended plan of reorganization to update possible trust asset use, backstop commitment fees

By Caroline Salls

Pittsburgh, April 5 - USG Corp. filed its first amended plan of reorganization and related disclosure statement Tuesday with the U.S. Bankruptcy Court for the District of Delaware that updates the company's progress on securing financing, the potential use of trust assets and the backstop commitment fees.

Under the plan, general unsecured creditors will receive 100% recovery in cash, and the plan establishes a trust for asbestos personal injury claims.

A plan confirmation hearing is scheduled for June 15, and the hearing on approval of the disclosure statement was postponed to April 7 from April 3.

The only creditors entitled to vote on the proposed plan are asbestos personal injury claimants.

According to the amended disclosure statement, the asbestos personal injury committee supports the plan and has sent a letter to voting creditors pledging its support of the plan.

Holders of asbestos personal injury claims will receive their distributions from the asbestos personal injury trust, to which USG will contribute up to $3.95 billion.

According to the disclosure statement, the plan is the culmination of asbestos personal injury litigation for the company that dates to the 1970s.

"The debtors are financially healthy companies with one overriding problem: asbestos litigation against debtor United States Gypsum Co.," which was a defendant when the company filed for bankruptcy in about 150,000 lawsuits for personal injury allegedly resulting from exposure to asbestos-containing products.

In January, the company entered into an asbestos agreement with the asbestos personal injury committee and the asbestos personal injury futures representative to resolve all asbestos personal injury claims against USG and to cooperate in the confirmation of a plan of reorganization.

Under the asbestos agreement, the company will attempt to consummate its plan of reorganization by July 1, and the agreement will be terminated if the plan has not taken effect by Aug. 1.

The company will fund the asbestos trust as follows:

• On the effective date, the company will pay $890 million and issue a $10 million promissory note to the trust with interest of Libor plus 40 basis points. The note will be payable no later than Dec. 31, 2006 and will be secured by 51% of the stock in U.S. Gypsum;

• The company also will issue one or more contingent payment notes, totaling $3.05 billion, to the trust, which will be payable if the FAIR Act of 2005 or any similar legislation creating a national trust or similar fund has not been enacted before the trigger date of 10 days after final adjournment of Congress;

• If the FAIR Act is enacted before the trigger date, and is not subject to a constitutional challenge to its validity before the trigger date, the company's obligations under the contingent payment note will not vest and the note will be canceled;

• If the FAIR Act is enacted in this time period but is subject to a challenge proceeding as of 60 days after the trigger date, the company's obligations under the note will depend upon whether the challenge proceeding is upheld.

If the FAIR Act is enacted, payments for personal injury claims would be limited to $900 million. If it is not enacted, the payments would be $3.95 billion.

The company added a provision to the amended plan that says if the FAIR Act becomes law, that portion of the $900 million remaining in the asbestos personal injury trust would be transferred into the national trust created by the legislation and the holders of asbestos personal injury claims could file their claims against the national trust.

If the FAIR Act is not enacted, USG's payment would be funded by about $1.6 billion in cash, a $1.8 billion rights offering to USG stockholders, about $1 billion in new debt financing and $1.1 billion in tax refunds.

Under the rights offering, the stockholders would be able to purchase shares at $40.00 per share.

The company said in the amended plan that it is in the process of receiving proposals from several lenders for the $1 billion in proposed debt financing.

Equity commitment

In connection with the rights offering, USG entered into an equity commitment agreement with the largest shareholder and chairman of the equity committee Berkshire Hathaway Inc., under which the new investor committed to buy from USG all of the shares offered under the rights offering that are not purchased by other stockholders, up to a total of $1.8 billion.

In exchange, USG would make a one-time, non-refundable payment of $67 million to the new investor, amended from $100 million. If the rights offering has not been completed by Sept. 30, the backstop commitment will expire.

USG has the option to extend the backstop commitment until Nov. 14, 2006 in exchange for an additional $6.7 million fee, amended from a $20 million fee.

Plan creditor treatment

Treatment of creditors under the plan will include:

• Holders of $14,000 in priority claims will receive 100% recovery in cash;

• Holders of $2,200 in secured claims will receive 100% recovery in cash or reinstatement of their claim, at the company's option;

• Holders of $471.01 million in credit facilities claims will receive 100% recovery in cash. Any letter of credit outstanding as of the effective date will be cash collateralized, refinanced, canceled or replaced;

• Holders of $289.25 million in senior notes claims will receive 100% recovery in cash;

• Holders of industrial revenue bond claims will receive 100% recovery in either cash or reinstatement of their claim, at the company's option;

• Holders of $115 million in general unsecured claims will receive 100% recovery in cash;

• Holders of asbestos personal injury claims will receive their share of the asbestos personal injury trust;

• Holders of asbestos property damage claims will receive 100% recovery in cash;

• Holders of stock interests in USG and its subsidiaries will have their interests reinstated.

USG, a Chicago-based building materials company, filed for bankruptcy June 25, 2001. Its Chapter 11 case number is 01-02094.

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