Grace seeks Chapter 11 protection

`Healthy' company effectively freezes asbestos litigation

Md. jobs apparently safe

No plant closings, expected

rivals also chose bankruptcy

April 03, 2001|By Paul Adams | Paul Adams,SUN STAFF

In a move that could have major implications for shareholders and victims of asbestos-related injuries nationwide, Columbia-based chemical maker W. R. Grace & Co. followed the lead of several of its rivals and filed for Chapter 11 bankruptcy protection yesterday.

The more than 150-year- old company, which moved its headquarters to Maryland from Boca Raton, Fla., in 1999, joins Owens Corning, Armstrong World Industries Inc., Babcock & Wilcox and several other major companies that have sought to reorganize under bankruptcy protection recently as a result of ballooning asbestos-related claims.

Though Grace's primary business remains healthy, company officials said, the move was necessary in order to deal with about 125,000 asbestos claims that measure in the billions of dollars and threaten to mire the company in litigation for years to come.

The widely anticipated filing, in U.S. Bankruptcy Court in Wilmington, Del., effectively freezes all asbestos litigation against the company indefinitely and will allow it to continue operating normally while it develops a reorganization plan to resolve the claims.

None of the approximately 1,100 employees in Maryland is expected to be affected by the move, and the filing does not include the company's foreign subsidiaries.

Also unaffected is the Grace Foundation, a charitable foundation that, among other things, has pledged $500,000 to Howard County General Hospital over five years. Grace officials stress that the company remains solvent and has arranged for $250 million in financing from Bank of America to help meet its cash needs.

"We don't expect to see any plant closings, asset sales or management changes as a result of the filing," said Paul J. Norris, chief executive officer of W. R. Grace. Most of the company's Maryland employees - about 800 - work at the company's manufacturing plant in Curtis Bay.

The claims against Grace stem from asbestos the company added to some of its fire-protection products before 1973. The fibrous mineral can cause lung cancer and other respiratory ailments that often don't show up until decades after victims were exposed.

In addition, Grace mined and processed vermiculite - used in insulation, potting soil and fertilizer - in Libby, Mont., for 27 years. Vermiculite contains a type of naturally occurring asbestos, and lung ailments in the town have been blamed on asbestos exposure associated with the vermiculite operation. It was shuttered by Grace in 1990.

Legal experts say the impact of the bankruptcy filing may be greatest on those with claims against the company, as well as company stockholders, who saw the value of their shares decline by more than 70 percent last year. Grace closed yesterday at $1.52 per share, down 78 cents, or 34 percent.

"In a bankruptcy, the claims of the asbestos victims are a higher priority than the stockholders. They could effectively wipe out all of the stock," said Charles Tatelbaum, a Naples, Fla., attorney who has worked on similar asbestos-related bankruptcy cases.

Said Kenneth Bradley, editor of Andrews Asbestos Litigation Reporter: "The amount of money victims will get will be reduced, and, if you're currently suing them ... you're not going to get anywhere with that suit for an indefinite period."

W. R. Grace officials say they will continue to work with asbestos claimants. For years, the company has handled injury claims through direct negotiations, but the number of claims against Grace grew exponentially after Owens Corning and others filed for Chapter 11 protection.

The company warned in January that it might have to follow suit after it saw an 81 percent increase in claims in 2000. The number of claims has risen even faster in the first quarter of this year.

The bankruptcy filing allows the company to deal with claims in a likely more friendly federal court, rather than fighting thousands of individual cases in state courts scattered throughout the country.

If a bankruptcy settlement is reached with attorneys representing both current and potential future victims, the company is expected to be able to emerge from bankruptcy free of any further asbestos liability.

"We think the federal court process offers a better venue for us," Norris said. "Frankly, we could never defend ourselves in the number of trials that are pending against us across the country."

The company is pushing Congress to pass legislation that would address the growing number of asbestos-related injury claims.

Grace reported a fourth-quarter loss last year of $107.6 million, largely the result of a $135.2 million charge related to asbestos litigation costs.

Analysts say the company otherwise is strong.

"It is really very sad, because Paul Norris, who joined the company at the end of 1998, has done a fabulous job; the profitability has increased and their businesses have grown, most of them," said Rosemarie J. Morbelli, an analyst with Ingalls & Snyder.

Morbelli said bankruptcy protection was the company's only salvation.

"You knew it was coming," she said. "It was the only way for them to be able to continue as an ongoing concern."

The company reported $2.5 billion in assets and $2.57 billion in debts in documents filed yesterday.

Grace employs more than 6,000 people worldwide and has annual sales of $1.6 billion. Its annual payroll in Maryland is an estimated $67 million.

The company's Grace Davison business unit was founded in Maryland in 1832 and produces chemical catalysts and silicas for use in oil refining, chemical processing, paints, food and personal products, among other things.

In addition to being hit with asbestos lawsuits, Grace was sued in the 1980s by residents of Woburn, Mass., who claimed the company was poisoning the water supply with cancer-causing toxins. The suits spawned a book and the 1999 movie, "A Civil Action," that starred John Travolta.

Bloomberg News contributed to this article.

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