New Era: Ruling Leaves Armstrong Still 'Paraly

Lancaster, PA, March 2-- Armstrong World Industries, according to the Lancaster New Era, still will have to do business with one hand tied behind its back. The newspaper reported that when a federal judge last week rejected its plan for reorganizing and emerging from bankruptcy, the company was left with a variety of challenges. It will have to forge a replacement plan, a complex, costly and time-consuming task. But, its business actions will remain restricted by the bankruptcy code, the company’s top executive said. The New Era quoted Michael D. Lockhart, Armstrong’s chairman and chief executive officer as saying that that the code’s restrictions leave a company "strategically paralyzed." He explained, "If we wanted to merge with someone, we couldn’t do it. If we wanted to make a substantial acquisition, we couldn’t do it. The normal levers you can pull aren’t available." Beyond that, seemingly any lesser business decision is subject to court approval too, from executive contracts to real estate deals, though the court consistently has sanctioned Armstrong’s requests. Lockhart added that the "uncertainty" resulting from being in bankruptcy "presents all kinds of intangible problems," such as recruiting, retaining and motivating employees. And bankruptcy has been a sizable financial drain on Armstrong. It’s paying about $1 million to $2 million a month in professional fees to more than a score of law and financial advisory firms, according to Armstrong’s quarterly earnings reports. Ironically, those legal bills include picking up the tab for the attorneys representing its unsecured creditors, whose opposition to the plan led to Wednesday’s rejection. The two lead attorneys for the creditors each charge nearly $800 an hour, Armstrong’s bankruptcy filings show. (In fairness, so does Armstrong’s own lead bankruptcy attorney.) Fortunately for Armstrong, its customers and suppliers are sticking by the company during the prolonged bankruptcy, which Armstrong once hoped would end in summer 2003. "We’ve never had a customer hiccup at doing business with Armstrong" because of the bankruptcy, said Lockhart. He added that the company also has kept its "good relations with our suppliers." Armstrong unveiled its reorganization plan in November 2002. The plan called for the current Armstrong corporation to be dissolved and a new Armstrong to be formed. Stock in the new Armstrong would have helped finance partial repayments of claims by the asbestos claimants and the creditors. The creditors, believing they’d fare drastically better if Congress creates a national trust to pay asbestos claims against all companies, including those against Armstrong, sought to delay or derail the Armstrong plan. Yet the creditors persisted. They took their case to the U.S. District Court, which has final say on the Armstrong plan because of the way it would permanently address those asbestos-injury claims. Their resolve was rewarded Wednesday, when U.S. District Judge Eduardo Robreno agreed with the creditors that the plan was illegal, because it would give a kind of stock option to shareholders without repaying the creditors in full. Robreno rejected Armstrong’s position that the creditors had waived that priority permanently. As the New Era reported Thursday, Lockhart estimated that it could take six months to two years for a replacement plan to be devised. The wild card in the process remains Congress. If Congress creates a national trust before Armstrong establishes its own, Armstrong’s efforts might be moot.