Armstrong in Court for Restructuring Plan
Lancaster, PA, May 24, 2006--Armstrong World Industries, in a two-year dispute over the size the payouts of its bankruptcy restructuring plan, is set to return to Philadelphia federal court today, with the company again squaring off against its unsecured creditors.
At stake is whether the company can emerge from bankruptcy after six years.
The hearing before U.S. District Judge Eduardo Robreno is expected to last three days, followed by the submission of post-hearing briefs in June and closing arguments in July.
Armstrong wants to set aside $1.8 billion to pay people injured by its asbestos insulation--including people who will file claims for payment in the decades to come--and pay $982 million to its large unsecured creditors.
Armstrong hopes to persuade Robreno that the sums are fair, a ruling that would let Armstrong out of bankruptcy.
But the unsecured creditors hope Robreno finds the plan “unfairly discriminates” against them, forcing Armstrong to stay in bankruptcy while it again revises the plan.
In court papers filed last week, Armstrong and its unsecured creditors stated their opposing views of the recently revised plan.
Earlier this year, Armstrong dropped a plan provision to give stock options to its current shareholders, a provision that caused Robreno and the 3rd U.S. Circuit Court of Appeals to reject the plan.
With the stock options dropped from the plan, the focus of the dispute has shifted to the number of future asbestos claims that Armstrong will have to pay over the next 40 years, on top of its already pending claims.
Simply stated, Armstrong thinks its forecast of future claims is a “reasonable” prediction; the unsecured creditors call it “wildly inflated.”
If it’s “reasonable,” the slices of the financial pie are fine as is.
If it’s “wildly inflated,” then asbestos claimants need to get a smaller slice, leaving more for unsecured creditors.
Armstrong notes that the unsecured creditors, a group consisting of about 1,000 holders of Armstrong bonds, initially agreed that the plan “provides the best possible recoveries.”
They supported the plan until a congressional proposal surfaced to create a federal trust to pay asbestos claims-- which would leave far more of Armstrong’s money for them.
Armstrong observes that the plan provides for the unsecured creditors to get back 59.5 percent of what they’re owed, while asbestos claimants would get paid only 20 percent of their claims.
That 20 percent payout is based on Armstrong having 140,000 pending asbestos claims when it filed bankruptcy and expecting 880,000 claims in the years to come.
But if that projection proves low, the asbestos claimants would bear the full consequences; in contrast, the unsecured creditors--a known quantity--face no such financial risk, Armstrong says.
The unsecured creditors, however, allege that the Armstrong projections are based on a flawed foundation.
First, the projections rely on the company’s pre-bankruptcy history of paying “thousands” of meritless claims as it coped with a deluge of claimants, the creditors say.
Armstrong also fails to consider recent state laws curtailing filings, tougher rules for estimating claims as established in the recent Owens Corning bankruptcy case and declining numbers of asbestos-related disease.
Taking all that into account, the creditors say Armstrong will get only 189,000 future asbestos claims to be paid out of that $1.8 billion slice of pie.
That will allow the claimants to get paid 91.3 percent of what they seek, an “unfair” amount compared to the 59.5 percent earmarked for the creditors, the creditors say.
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