NEW YORK (CNNfn) - Owens Corning filed for Chapter 11 bankruptcy protection from its creditors Thursday in an attempt to restore its cash flow following the company's multi-billion-dollar liability over asbestos claims.|
The Toledo, Ohio-based fiberglass and composite materials maker also said it has obtained a $500 million credit line from Bank of America that it can use to "meet future needs" of the company, pending court approval of the arrangement.
The action should have no effect on the supply of building materials in the industry, said Gary Schneider, an analyst with Bear Stearns. Schneider said the cash infusion from Bank of America will allow Owens to continue business as usual.
Owens Corning agreed to pay $1.2 billion in 1998 to settle more than 176,000 asbestos-related claims against the company, but that deal fell apart when the U.S. Supreme Court barred the settlement. The
company has since set aside $2.6 billion in a reserve fund earmarked for the claims.
Owens Corning stopped selling insulation products containing asbestos in 1972.
"Owens is a leading manufacturer in this market segment," said Schneider. "They fought the good fight but it finally caught up with them."
Owens Corning said the bankruptcy protection filing will allow the company to keep its operating business going and serve its customers while developing a reorganization plan that will resolve its liabilities.
"With the Chapter 11 process we can finally put this difficult issue behind us in a fair and responsible manner," Chairman and CEO Glen H. Hiner said. "The combination of our cash on hand, existing cash flow and a new $500 million financing commitment provides the company sufficient liquidity to meet all future financial obligations to employees, suppliers and vendors."
Schneider said there has not been an approval of global settlement of asbestos claims, therefore companies continue to be hit by individual suits.
It could take as much as a decade for Owen to emerge from its bankruptcy situation, Schneider said, but then the question remains as to how much value is left for the company's bondholders.
All of the company's U.S. operating divisions also filed Chapter 11 petitions. The company's international units were not involved.
The company also said it will not make its quarterly dividend payment scheduled for Oct. 13 because of the filing.
Owens Corning (OWC: Research, Estimates) shares were held at the opening of trading Thursday following the morning announcement. The stock is trading near all-time lows, closing down 25 cents to $2 Wednesday. The stock has fallen more than 90 percent since May 1999.