The eBearing News
October 15, 2002
Federal-Mogul Requests Additional Delay
to File Reorganization Plan
copyright © 2002 eBearing Inc.
Federal-Mogul Corporation, which filed for protection under Chapter 11 of the
U.S. Bankruptcy Code
on October 1, 2001, has still not filed the necessary Plan of Reorganization.
Instead, the company is now requesting a third filing extension.
Federal-Mogul's bankruptcy was driven by declining results from its auto parts
operations, compounded by an avalanche of asbestos-related claims related to
its acquisition of T&N plc. Federal-Mogul lost USD $810 million in the quarter
ended the day before the bankruptcy filing.
• article: F-M October 2001 bankruptcy filing
A case filed under chapter 11 of the U.S. Bankruptcy Code is often referred
to as a "reorganization bankruptcy"; a voluntary action where the debtor remains
in control of the business and is termed a "debtor in possession." Under the
provisions of Chapter 11, the organization continues to operate normally,
in an effort to pay back creditors and re-establish itself. Within 120 days
of filing Chapter 11, the company must file a reorganization plan detailing
how it will operate to successfully emerge from Chapter 11 to the benefit
of the creditors.
If a company fails to file
its own reorganization plan within that 120 day window, creditors and shareholders
can then file
their own reorganization plans for the company.
Federal-Mogul's reorganization plan was originally due February 1, 2002. The company
then received an extension until August 1, 2002 and another until
November 1, 2002.
The company is now seeking yet another
extension. If this third extension is granted, the new deadline for filing a
reorganization plan will be March 1, 2003 -- fully fourteen months after the
initial deadline.
During the 2002 annual meeting, F-M President and CEO Frank Macher offered
this explanation:
The Plan of Reorganization will determine the treatment that will be provided
to all our stakeholders. One of the things that comes from being in bankruptcy is
that your Board of Directors has more constituents to look out for. I cannot share with you
any details of the plan as we are in the early stages of this process.
The Plan of Reorganization is very complicated because we have a large number of
stakeholders who have claims. The sheer volume of claims and determining the amount
claimants will receive is difficult, but this is the process in which we are now engaged.
To put this in perspective, I'd like to share with you a very high level overview of our
constituents.
First our banks. The repayment of our debtor-in-possession financing from a group of
banks led by J.P. Morgan Chase & Company, comes first above everything else. This was
our post-petition or post-filing loan of up to $675 million.
Generally, the secured creditors come next.
This includes our pre-petition bank lenders and surety bonds, who lent us money or
provided security prior to our filing. As of March 31st, 2002, we owed $2.2 billion in
pre-petition debt to this group.
We also have bondholders. Our pre-petition debt with our bond holders, totaled two
billion dollars as of March 31, 2002. All total, our pre-petition debt is four-point-two
billion dollars.
Equal to bond holders are the asbestos claimants for both current and future claims. The
valuation of the asbestos claims is very complex and challenging. We also have our trade
creditors. These are suppliers whose outstanding invoices prior to our filing have not been
paid. This amounts to about two hundred million dollars.
The lowest priority is the equity holders, and the holders of our preferred stock come
before the holders of our common stock.
As you can see, we have a lot of constituents who are looking for recovery. This is all part
of the Plan of Reorganization. At this point, we are not able to say that everyone will
receive some value. We cannot predict what will happen to the price of your shares.
What I can tell you is that our goal is to maximize our enterprise value. The more successful
we are as a company, the bigger enterprise value we will have. A bigger enterprise value means
more is available for distribution to our constituents. Again, you must remember that all
creditors are paid before shareholders receive a return.
Some of the companies most affected by the Federal-Mogul bankruptcy were
its bearing suppliers.
• article: bankruptcy affects F-M's bearing vendors
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