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The eBearing News
October 7, 2003
Federal-Mogul Reorganization
Hits Setbacks
copyright © 2003 eBearing Inc.
Once-powerful Federal-Mogul Corporation (USA), now struggling to emerge from protracted
Chapter 11 bankruptcy proceedings, was handed two recent setbacks.
Rapidly mounting asbestos claims, numbering over 360,000, compounded by problems in its traditional
auto parts operations, forced F-M to seek Chapter 11 bankruptcy protection in October 2001.
The company and its creditors did not reach a reorganization agreement until January 2003.
Implementation of that reorganization has been sliding, now possibly to be complete in mid-2004.
The bankruptcy court Judge overseeing Federal-Mogul's operations denied its request
to exclusively negotiate a USD $350 million investment by Citigroup Venture Capital Equity
Partners L.P. (CVC). CVC had requested a 90-day exclusivity, due diligence and negotiating window;
Federal-Mogul also sought unusual approval to
reimburse CVC for fees and expenses related to those negotiations.
Citigroup Venture Capital was founded in 1968 and manages more than $10 billion in assets.
Delaware bankruptcy court Judge Randall Newsome said in the public filings only that it was
denied, "for the reasons stated in chambers on the sealed record."
Under the currently agreed reorganization plan, F-M's existing common stock shareholders would
have their equity
erased and the stock eliminated. Then, note holders and asbestos claimants would convert all of
their claims into new common stock in the reorganized company. 49.9% of the newly-created equity
would go to note holders and 50.1% would go into a trust organized to benefit the asbestos-related claimants.
In addition to 49.9% of the equity, the plan also involves at least one round of cash payments to
creditors. The $1.6 billion of trade payables which the company had when it declared bankruptcy
would be restructured into a combination of 6.5-year maturity Senior Secured Term Loans and 11-year
maturity Junior Secured PIK Notes.
However, since that agreement was reached, F-M warned the court, "conditions in the automotive parts
industry have deteriorated" and that modifications to the restructuring would now be needed to ensure
the company's viability. Because the company's core businesses have continued to decline, there is
less and less ability to live up to the requirements and debt load laid out in the reorganization plan.
Under the proposed investment, Federal-Mogul would have
issued CVC $350 million in preferred stock, convertible to 49% of post-bankruptcy equity. The
remainder goes to asbestos claimants and unsecured creditors. The stake would give CVC the authority
to elect a majority of Federal-Mogul's board of directors.
Federal-Mogul had hoped the CVC investment would allow it to emerge from bankruptcy with as much
as $670 million less long-term debt than the $2.3 billion now anticipated.
A Federal-Mogul spokesman said after the decision, "We remain committed to emerging from
Chapter 11, asbestos-free and with a strong balance sheet."
But F-M is now dealing with fallout from another lawsuit, this one filed by no less than all
Big Three Detroit automakers.
The lawsuit was filed last week against Honeywell International Inc. and its Bendix brake
parts division by Ford Motor Company, General Motors Corp., and DaimlerChrysler AG.
The Big Three aim to stop what they call a "fraudulent transfer" of Bendix assets from Honeywell
to Federal-Mogul, a move they claim is designed solely to bury 47,000+ Bendix asbestos claims in Federal-Mogul's
bankruptcy. If Federal-Mogul is allowed to acquire Bendix, the mountain of asbestos claims against Bendix
would be channeled into the Federal-Mogul asbestos trust, freeing Honeywell and Federal-Mogul from liability
once the F-M reorganization is complete.
Ford, General Motors and DaimlerChrysler are co-defendants in many of the asbestos claims filed
against Bendix; the transaction would leave them as the only solvent targets for
mounting claims.
The Big Three said in a statement, "Bankruptcy protection cannot be bought and sold. Federal-Mogul's
and Honeywell's unprecedented attempt to do so would violate federal and state law, be unfair to
thousands of asbestos claimants and inappropriately shift litigation costs to the automakers."
Honeywell has been in other legal trouble with Bendix. Last week, Honeywell was ordered by
a court to reinstate health care benefits to Bendix retirees. Honeywell simply stopped paying health care
for Bendix retirees in mid-2002, despite a contract guaranteeing those benefits for life.
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- by Bruce A. Carr
from individual research,
tips and commercial sources.
Unauthorized reproduction is prohibited.
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eBearing.com ... for everything that moves™
Entire contents Copyright 1999-2008, eBearing Inc. All rights reserved.
eBearing.com and "... for everything that moves" are registered
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eBearing.com ... for everything that moves™
Entire contents Copyright © 1999-2008, eBearing Inc. All rights reserved.
eBearing.com and "... for everything that moves" are registered trademarks of eBearing Inc.
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