Judge OKs Grace bankruptcy reorganization plan

Plan must be confirmed in District Court

January 31, 2011|By Andrea K. Walker, Jamie Smith Hopkins and Lorraine Mirabella, The Baltimore Sun

A Delaware judge confirmed Monday a reorganization plan by chemical maker W.R. Grace, a critical step for the Columbia company to emerge from bankruptcy.

The plan, which was reviewed by Judge Judith Fitzgerald, would create two asbestos trusts to compensate personal-injury claimants and property owners. Asbestos-related lawsuits were a large part of why Grace filed for Chapter 11 protection in 2001.

"She blessed the plan," said Peter A. Chapman, president of Bankruptcy Creditors' Service, which publishes newsletters about major corporate restructurings. "And her blessing is very, very important."

While the plan still must be confirmed by a federal District Court in Delaware, the decision by Fitzgerald was key to Grace exiting bankruptcy. District Court judges, who get involved in bankruptcy cases involving personal-injury claims, usually follow the lead of the bankruptcy judges, Chapman said. He predicted that the District Court would rule quickly, perhaps within 30 days.

"This is a major step in the process of emerging from Chapter 11," Fred Festa, Grace chairman and chief executive, said in a statement. Festa added that the plan "is fair to all the parties and once and for all removes the uncertainty that has been clouding our future."

A Grace spokesman said company executives wanted time to read the opinion before making any public comment beyond the prepared statement.

Grace's bankruptcy proceedings were the longest of those of several companies that filed for bankruptcy about a decade ago in response to asbestos-related claims, said Jim Barrett, director of research for CL King & Associates in New York. He said the complexity of asbestos exposure claims filed by residents of Libby, Mont., and others against Grace likely lengthened the process.

Barrett said the reorganization plan, or parts of it, can still be appealed over the next 10 days. But he said he would not expect asbestos claimants to appeal the judge's decision.

"It certainly is a necessary and positive step in the company ultimately emerging from bankruptcy," he said. "I think we're in the ninth inning in terms of W.R. Grace emerging."

The company had expected to emerge from bankruptcy last year, but Fitzgerald took a year to make a decision on the reorganization plan, an amount of time that Chapman said was unusually long.

Grace has largely continued normal operations during the bankruptcy, including making more than 20 acquisitions since 2001. But for a time it stopped other practices, such as holding quarterly earnings conference calls, something it resumed last year as it got closer to emerging from bankruptcy.

Analysts said exiting bankruptcy also would open the doors for the company to resume other activities. The company would no longer be paying legal fees related to the bankruptcy and might be able to pay a dividend, Barrett said. Grace also would be able to enter into larger acquisitions than it has made in the past. And other companies might be more interested in acquiring Grace, Barrett said.

"That is one of the benefits of a company that clearly has attractive franchises of being in a nonbankrupt state," Barrett said.

"This is a reborn company," Chapman said. "All of the asbestos liabilities are going to be old news. It's going to be resolved by the trust that's going to spring to life."

Under the plan, the trusts would be funded from a variety of sources, including cash, insurance proceeds, warrants to purchase Grace common stock and deferred payment obligations, according to the company's statement. The trust would be used for current and future asbestos claims.

Bringing the case to a close also would be beneficial to the parties involved in the bankruptcy proceedings.

"The lawyers representing the asbestos claimants have an interest in being paid, and the claimants have an interest in being paid, as do the various creditors who have been sitting on the sidelines the past nine years," Barrett said.

andrea.walker@baltsun.com

twitter.com/ankwalker

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