MAC: Mines and Communities

USG Corporation in $4 Billion Asbestos Claim Settlement

Published by MAC on 2006-01-31

USG Corporation in $4 Billion Asbestos Claim Settlement

by PlanetArk

31st January 2006

NEW YORK - Building products company USG Corp. on Monday said it reached a nearly $4 billion settlement to resolve all current and future claims for asbestos-related injuries against it, sending its shares soaring to highs it had not touched in more than a decade.

Asbestos claims have pushed more than 70 US companies into bankruptcy. Fibers from the material have been linked to cancer and other lung-scarring diseases.

USG said the claims trust would be funded with $900 million cash and a contingent note for $3.05 billion. However, the contingent note would be cancelled if the US Congress passed a bill in its current session creating a national fund.

Shares in other companies with asbestos exposure, which fell on Friday on news that USG was near a settlement, also rose as details of the agreement emerged. People with long experience in asbestos litigation said the deal was a sign that USG believes legislators will not establish a national fund.

"It's an unbelievable vote of no confidence in the asbestos bill," said Jeff Cooper, managing partner of Simmons Cooper, a law firm that represents people with the asbestos-linked cancer mesothelioma in cases against companies, including USG.

USG, which believes it would have to pay just $900 million into a national asbestos compensation program, said it continues to support legislation creating a national trust fund that is due to reach the floor of the US Senate next month.

The settlement paves the way for USG to emerge from bankruptcy around the third quarter, fully repaying bondholders, bank lenders and trade suppliers with interest.

USG's contingency arrangement is not without precedent. The settlement for McDermott International Inc.'s Babcock & Wilcox unit includes just over $600 million in payments that would be required if the bill did not pass by Nov. 30.

Legislation to create a $140 billion national fund is due to come to the floor of the Senate for debate on Feb. 6. The fund would be financed by companies and insurers, but there are doubts about whether the bill has the support to become law.

"I think this bill going away is going to do wonders for the speed with which companies which are already bankrupt work their way out of bankruptcy," Cooper said.

But an attorney who researches asbestos litigation issues for insurers said the USG settlement was not necessarily a comment on the likely fate of the asbestos fund legislation.

Mark Behrens of Shook, Hardy & Bacon LLP said the political arena was full of uncertainty for all parties in asbestos suits. "As in litigation, the parties may have chosen to settle 'on the eve of trial' rather than risk a 'winner takes all' type of outcome," he told Reuters.

Consumer group Public Citizen said the difference between $900 million and the $4 billion USG would pay in the absence of a national fund "makes plain that the federal trust fund is a corporate bailout in sheep's clothing."

USG said its payments due to unsecured creditors would total about $1.4 billion, and it would reinstate about $240 million in debt.

The company said the settlement would be funded from $1.6 billion cash on hand, a $1.8 billion rights offering to existing shareholders being backstopped by Berkshire Hathaway Inc., up to $1 billion in new debt and a cash tax refund of up to $1.1 billion.

USG shares were up $14.72, or 18.4 percent, to $92.57 in late afternoon New York Stock Exchange trading. They reached as high as $99.01 - a level the shares last touched in the early 1990s. Other asbestos-linked shares were mixed. W.R. Grace and Co. was up 3.3 percent at $11.20, and Owens Corning, was down up 5.8 percent at $4.05. (Additional reporting by Susan Cornwell in Washington)

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