An onslaught of claims for damages due to asbestos related disease drove Federal-Mogul into bankruptcy more than six years ago. But on Wednesday, a bankruptcy judge announced that she will sign off on orders confirming the company's Chapter 11 plan, setting the company up for a fast exit from bankruptcy.
"Congratulations, all of you. It's been a lot of work," Judge Judith Fitzgerald of the U.S. Bankruptcy Court in Wilmington, Del. told lawyers for Federal-Mogul and its creditors at a telephone court hearing. During the session, the company presented final settlements removing all objections to its Chapter 11 plan.
James Conlan, attorney for the Southfield, Mich., parts maker, told Fitzgerald rounds of negotiations in recent weeks had cleared away the last remaining obstacles to the plan, which resolves billions in liabilities for asbestos-related disease.
"You will be able to enter the order confirming the plan with no objections," Conlan told Fitzgerald, a Pittsburgh bankruptcy judge who has been presiding over the Chapter 11 case Federal-Mogul since it began in 2001.
Fitzgerald said she would read the documents, but unless any unforeseen problems arise, she will sign off on the order confirming Federal-Mogul's Chapter 11 plan soon. A federal judge in New Jersey, U.S. District Judge Joseph Rodriguez, has the final say on Federal Mogul's Chapter 11 plan, and will be asked to affirm Fitzgerald's confirmation ruling.
"We expect that obviously he will do that easily since there are no objections," Conlan adds.
Shaking off the last objections to its Chapter 11 restructuring was vital to Federal-Mogul, which must put its plan in place by midnight Dec. 31, or sit down with its banks to renegotiate pricing on $3.5 billion worth of reorganization exit financing.
Earlier this year, Fitzgerald presided over confirmation hearings where objectors led by insurance companies tried to block Federal-Mogul's plan. She issued preliminary rulings that indicated she was inclined to rule for the company and against the objectors on most issues.
However, the prospect of appeals meant a threat of delay that would push Federal-Mogul past the expiration date on its exit loans. Recent deals to remove objections also removed the threat of appeals.
"We have been racing against the clock," Conlan says, referring to the push to put the Chapter 11 plan into effect before the end of the year, while lender commitments to cheap financing still hold.
In a climate where the cost of corporate borrowing is climbing, Federal-Mogul faced the likelihood that, had the clock run out, banks would ask for higher fees and interest on the loans that funded the company's entry into the automotive industry without the shield of court protection. In addition, Federal-Mogul's Chapter 11 plan shifts asbestos liabilities off the company's balance sheet and sets up a trust to pay claims for disease due to the toxic substance.
Once the plan is implemented, ownership of the reorganized Federal-Mogul will be split between commercial creditors, led by billionaire investor Carl Icahn, and people with claims for asbestos damages. Icahn has agreed to buy out the half of the reorganized Federal-Mogul that is earmarked for the asbesto claimants, in a transaction expected to give him control of the company.
For more information on Federal-Mogul Corporation, visit the company's Web site.