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The eBearing News
October 6, 2005
Federal-Mogul Amends Reorganization Plan
copyright © 2005 eBearing Inc.
Federal Mogul Corp. (USA, operating under Chapter 11 bankruptcy protection since October 2001)
announced a settlement agreement between it, the U.S. reorganization plan
proponents and the U.K. Administrators. This latest reorganization plan, if approved,
settles all outstanding matters in dispute among them and paves the way for F-M
to exit Chapter 11.
Key to the resolution was Federal-Mogul's agreement to
pay $442 million into the pension fund of its U.K. affiliate, T&N plc,
resolving the final UK reorganization issue. The T&N pension fund issue impacts
4,000 current and 36,000 retired employees.
The $442 million covers only a portion of T&N's pension fund shortfall, estimated at
more than $1.6 billion. The remaining $1.2 billion would be taken on by the
recently-formed UK Pensions Protection Fund.
Federal-Mogul, Mr. Icahn's investment companies, and others had made several prior offers
to resolve the underfunded pension problem, but the best offers to date had been only a
fraction of the possible liability, and had been rejected by fund trustees.
This latest agreement is only preliminary, however, as PPF trustees made clear
in a statement:
"The agreement reached is subject to a large number of conditions and a great deal of work
remains to be done in order to complete all the arrangements.
The question whether the T&N scheme will be admitted to the PPF remains to be finally resolved."
The central premise of F-M's reorganization plan is 49.9% of the reorganized company's equity
going to unsecured creditors, while 50.1% will go into a 524(g) trust benefiting
F-M's asbestos injury claimants. Former shareholders will see their common stock shares
cancelled at zero value, but they will receive warrants to purchase shares in the reorganized company.
As of August, the courts estimated Federal-Mogul's asbestos litigation exposure
is in the neighborhood of $9.5 billion.
Now, fearing a liquidity crisis, the Asbestos Trust administrators expressed
the need for an immediate cash infusion. They have asked that, once the reorganization plan
has been implemented, shareholder Carl Icahn's investment companies (High River LLP and
Riverdale LLP) make arrangements to provide that cash infusion.
The Trust, working with Mr. Icahn, requested Mr. Icahn's group's cash infusion come via
buying out the Trust's Federal-Mogul shares, being whatever amount of shares the court
decides it may sell off. The Trust is seeking approximately $775 million from Mr. Icahn's
group -- $375 million in cash and $400 million via notes.
Federal-Mogul attorney, James Conlan, told the U.S. Bankruptcy Court, Delaware District,
the Trust financing agreement would give Mr. Icahn an option to buy 86% to 87% of the
Trust's 50.1% stake in Federal-Mogul, or 43.15%. That total, 38.4 million shares, would be in addition
to the majority share he already controls via earlier equity and debt purchases.
Alternatively, Mr. Icahn could provide the Trust with a $100 million term loan.
Mr. Icahn's investment arms first acquired major positions in
Federal-Mogul equity back in March of 2000 -- after shares fell 66% in 1999 and another
20% in 2000 -- when it became obvious the company's operations were in dire straits and financially
vulnerable. Once the company entered Chapter 11 bankruptcy, Mr. Icahn's group began buying
up debt and is now the largest bondholder.
Federal-Mogul CEO, Jose Maria Alapont, said the agreements just reached are the most
important progress so far toward the company exiting Chapter 11. He said, "We are pleased with the
support and collaboration in the recent months from Mr. Icahn, our Plan Proponents and stakeholders. We
will welcome Mr. Icahn's potential increased stake in the emerging and reorganized Company."
The bankruptcy court has scheduled a hearing on this latest plan for November 9, 2005.
If all goes well, several analysts told eBearing they expect Federal-Mogul may have an opportunity
to exit Chapter 11 bankruptcy by mid-2006, with Mr. Icahn and a hand-picked management team in control.
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- by Bruce A. Carr
from individual research,
tips and commercial sources.
Bruce Carr edited this content.
Copyrighted material; unauthorized reproduction prohibited.
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eBearing.com ... for everything that moves™
Entire contents Copyright © 1999-2011, eBearing Inc. All rights reserved.
eBearing.com and "... for everything that moves" are registered trademarks of eBearing Inc.
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