New York, NY, Apr. 5--Standard & Poor's Ratings Services said today it lowered its ratings on vinyl-flooring manufacturer Congoleum Corp. to 'D' and removed them from CreditWatch.
Standard & Poor's initially placed the ratings on CreditWatch with developing implications on Jan. 15, 2003, when the company announced that it was negotiating a global settlement with current asbestos plaintiffs and planned to file for bankruptcy.
The latest rating action was prompted by the company's failure to make the Feb. 1, 2004, interest payment on its $100 million 8.625% senior unsecured notes," said Standard & Poor's credit analyst Pamela Rice. As a result of the bankruptcy filing, the company is prohibited from paying interest on the senior unsecured notes. The company's prepackaged Chapter 11 plan of reorganization, which was filed on Dec. 31, 2003, provides that Congoleum's nonasbestos creditors will be unimpaired. Although the proposed plan of reorganization provides that the senior unsecured notes will be reinstated with accrued interest payable upon the effective date of the plan, Standard & Poor's is unsure as to the timing and certainty of such an event.
Total debt at Dec. 31, 2003, was about $110 million.
Under the terms of the plan, Congoleum will contribute certain insurance rights and a note for about $2.7 million to a trust to be formed for the benefit of asbestos personal injury claimants. If the plan is confirmed, all current and future asbestos claims against Congoleum would be channeled to the trust and Congoleum would have no further liability for such claims. In January 2004, the bankruptcy court approved debtor-in-possession financing for Congoleum and authorized the company to pay suppliers in the ordinary course of business.
Congoleum, based in Mercerville, NJ, experienced a rapid escalation in the number of asbestos-related claims filed against it during the past three years. Insurance carriers had covered a substantial majority of all defense and indemnity costs incurred until August 2002, when the company was notified that it had exhausted its primary coverage (the company had purchased primary and excess insurance policies providing in excess of $1 billion coverage for general and product liability claims). The excess insurance coverage is being litigated in a separate proceeding in New Jersey State Court.
