Mercerville, NJ, Jan. 13--Congoleum Corporation plans to file a prepackaged plan of reorganization under Chapter 11 of the United States Bankruptcy Code. The move is part of a reorganization strategy to free itself from mounting asbestos claims. The strategy involves negotiating a global settlement with current asbestos plaintiffs. To that end, the firm has begun preliminary settlement negotiations with attorneys representing the majority of plaintiffs with asbestos claims pending against Congoleum. When negotiations are settled, the firm will then file for Chapter 11. Congoleum intends to propose a plan under which its trade creditors would not be adversely affected.
Roger S. Marcus, chairman of the board, commented, "We believe this step is a very positive move for Congoleum's future. Over the past several years, there have been great improvements in Congoleum's product offering, distribution, and manufacturing capability. Unfortunately, these achievements have been overshadowed by the cloud of asbestos litigation hanging over the company."
Negotiation of a reorganization plan should take from four to six months, at which time it would file for bankruptcy and request court approval of the plan. Congoleum expects it would take another two to six months to have the plan confirmed and emerge from the process. Upon filing, Congoleum intends to seek immediate court approval to continue to pay all its pre-petition trade creditors in the ordinary course of its business, and consistent with past practices.
Congoleum expects that the reorganization would provide for an assignment of applicable Congoleum insurance to a trust that would fund the settlement of pending as well as future asbestos claims, and that the plan would leave Congoleum's trade creditors unimpaired and protect the company from any future asbestos related litigation. Unlike a conventional bankruptcy proceeding, a prepackaged bankruptcy can significantly reduce the time and cost of the Chapter 11 process, resulting in a more predictable outcome for all constituents. Much of the time consumed in a non-prepackaged bankruptcy proceeding is spent on negotiations among various classes of creditors competing over how their respective claims will be treated under a plan. By reaching an agreement in advance of filing with the plaintiffs, other classes of creditors will be unimpaired.
Marcus said, "Because this process now involves discussions with a wider circle, we felt it best to communicate our strategy to assure our non-asbestos creditors, customers, employees and other constituencies who might have concerns about the asbestos issue and how it could affect them. We have worked hard to craft a strategy that would resolve the asbestos problem without harm to our trade creditors, customers, and employees, and we look forward to receiving their full support throughout this process. We expect to operate on a business as usual basis throughout this process. The net cash provided by operating activities and the funds available under the existing credit facility should be more than adequate to fund anticipated working capital requirements, debt service and planned capital expenditures through this process. We believe this settlement strategy of resolving our current and future asbestos liabilities through a prepackaged bankruptcy is in the best interests of the company, the claimants and the company's other constituencies, and for that reason we are optimistic that it will succeed. However, if a fair resolution cannot be reached, we are fully prepared to utilize our insurance and other resources to return to the strategy of vigorous defense that we have employed in the past.”
