Armstrong Clears the Decks As Crucial Hearing Near

Lancaster, PA, Oct. 21--The strategy of Armstrong World Industries for emerging from bankruptcy protection as soon as possible seems to boil down to these four words, according to the Lancaster New Era: Let's make a deal. A month before a crucial hearing to determine whether its reorganization plan gets court approval, Armstrong has reached another key settlement with opponents of the plan. The settlement, disclosed in a court filing Wednesday, is the latest -- and largest -- signal that Armstrong prefers compromise now to courtroom conflict, possible delays and uncertain outcomes later. As Armstrong said in its 12-page filing, this latest accord would "remove the most significant obstacles to consensual confirmation of the plan." The settlement would end a complex dispute between Armstrong and the Center for Claims Resolution, the organization, which Armstrong helped establish 15 years ago to handle its asbestos-injury claims. It also would resolve related disputes between Armstrong and 10 other major businesses that used the CCR's services as well as an insurance company. If the settlement is approved by the bankruptcy court, the CCR, CCR members would withdraw their objections to the Armstrong plan. The CCR, the CCR members also would withdraw the claims they filed against Armstrong seeking repayment, through the bankruptcy process, of money the company allegedly owes them. Those steps, in turn, would avoid a prolonged battle over the fairness of the plan during a court hearing Nov. 17, when Armstrong will ask the court to confirm (approve) its reorganization plan. Confirmation at that time would allow the firm to emerge from bankruptcy by its stated goal of year's end. Armstrong and other companies that were being deluged by asbestos-injury claims formed the non-profit CCR in 1988 to litigate and settle those claims on their behalf. But, after filing bankruptcy in 2000 under the crushing financial weight of those asbestos claims, Armstrong breached its contractual obligations as a CCR member, the CCR alleged. As part of that breach, the CCR alleged, Armstrong owes the organization $294.1 million for payments the CCR made on the company's behalf. Beyond that, after the CCR tried to recoup that sum from Armstrong via the bankruptcy process, the company incorrectly categorized the debt and wants to repay a smaller portion than the CCR deserves, the CCR contended. That mistake means less for the CCR members who'll share in whatever Armstrong repays, the CCR and its members maintained. After Armstrong filed bankruptcy later than year and allegedly reneged on its obligations, the CCR went to draw on the bond, but Armstrong filed suit to block it. That issue remains in the courts. Safeco, too, is trying to recoup money from Armstrong via the bankruptcy process, but likewise believes its debt was incorrectly placed in a lesser-paying category. Safeco is seeking $470,000 in legal fees incurred due to the Armstrong suit. And if the courts ultimately find that the CCR can draw on the bond, Safeco would have a $56.2 million claim against Armstrong. In asking the court to approve the settlement, Armstrong said while its legal positions are strong, it would take considerable time and money to defend those positions -- "without any assurance of a better result." Armstrong used similar language last week in asking the court to approve a settlement with the U.S. Department of Labor, which also had objected to the reorganization plan. At least two other major settlements were struck by Armstrong earlier in the year that likewise enabled the company to sidestep a prolonged courtroom fight during the confirmation hearing. In August, it was disclosed that Armstrong had reached a settlement with a major insurer, Liberty Mutual, to end a dispute about the fate of Armstrong's asbestos-injury insurance policies. In May, Armstrong agreed to pay $7 million to settle the 92 remaining claims that alleged property damage to buildings from old Armstrong asbestos flooring. Armstrong's journey through bankruptcy has been marked by a concerted effort to strike what it deems fair, reasonable deals and thereby speed the process. Armstrong consequently is on track to emerge in half the time that similar cases have taken. This was evident in the development of its reorganization plan -- the blueprint that details how Armstrong will repay its debts and how much it will repay -- which Armstrong unveiled a year ago after reaching a consensus with the main groups of creditors. Armstrong's reorganization plan calls for dissolving the current corporation and canceling the current stock, replacing them with a new corporation and new stock. About two-thirds of the new Armstrong would be owned by the asbestos trust; one-third by Armstrong's unsecured creditors.

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