Armstrong CEO Predicts 'Substantial' Delay

Lancaster, PA, February 25—-According to a report in the Lancaster New Era, after four years of trying to get out of bankruptcy, Armstrong World Industries may have been sent back to square one. The newspaper reported that the U.S. District Judge Eduardo C. Robreno ruled Wednesday that the company’s plan for reorganizing itself is illegal, because it would give a kind of stock option to shareholders. The decision means Armstrong might be in bankruptcy another six months to two years, as it forges a replacement plan and weighs an appeal, the company’s top executive said today. "Clearly, there will be a substantial delay in our emergence from bankruptcy, no matter what course we take," said Michael D. Lockhart, chairman and chief executive officer. Meanwhile, because of bankruptcy’s restrictions, the maker of floors, ceilings and cabinets will remain limited in its ability to respond to a changing industry, he said. "The normal levers you can pull aren’t available," said Lockhart. Armstrong, entered bankruptcy in December 2000 to find a permanent solution to a flood of personal-injury lawsuits it faces. Wednesday’s decision by judge Robreno is a major victory for Armstrong’s nemesis in the bankruptcy process, its unsecured creditors. The unsecured creditors — its bondholders, bank lenders and suppliers — frequently sought delays in the bankruptcy process and vociferously opposed the plan. They did so in hopes that Congress will pass an asbestos bill, which might let them recoup everything Armstrong owes them, rather than the 59.5 percent they would have gotten back under the Armstrong plan. The plan also would have created a company-funded trust to pay the asbestos claimants. To help fund the payments to the unsecured creditors and asbestos claimants, the current Armstrong corporation would have been dissolved and a new Armstrong corporation created. Nearly all of the stock in the new corporation would have gone to the unsecured creditors and asbestos claimants. However, shareholders in the existing Armstrong would have gotten a kind of option, known as warrants, to buy new Armstrong shares. Initially, Armstrong, the asbestos claimants and the creditors all agreed to the plan. But in fall 2003, as Congress took more interest in asbestos legislation, the creditors broke ranks. The creditors filed a host of objections to features of the Armstrong plan, including the warrants. That was the issue Robreno seized upon. "We put that in there with the support of all the bankruptcy experts on all sides," said Lockhart. "The judge disagrees with those folks. What we obviously have to do is sit down with all the experts and find out, what does his ruling mean? "What we thought was a relatively routine provision turns out to be unacceptable to Judge Robreno," said Lockhart. Here’s the issue: the bankruptcy code says a "junior" group (such as shareholders) can’t receive anything if a "senior" group (such as the creditors) objects or gets less than full repayment. Armstrong argued that the creditors made a "knowing waiver" of that provision when they initially supported the plan. "This court disagrees," wrote Robreno in his 41-page ruling, saying the creditors were free to change their minds, even if their motive was the prospect of Congressional action. "In the absence of bad faith, which was not alleged here, and particularly in light of the changed circumstances, until a party consents and the consent is final, that party may walk away..." Lockhart said Armstrong might appeal Robreno’s ruling to the 3rd U.S. Circuit Court of Appeals, "but at the end of the day we need to come to a resolution of this that’s satisfactory to all parties." Lockhart noted that Robreno had other concerns with Armstrong’s plan besides the warrants, so even if an appeal would prove successful, the company needs a replacement plan. Lockhart said it’s unclear if the national trust now being proposed would have enough money to pay all the asbestos claims. If the money ran out, companies would be liable again, just as they are now. "The current legislation does not provide finality," he said. "We want finality."

Related Topics:RD Weis, Armstrong Flooring

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