Here's an interesting way to handle the asbestos liability:
"Honeywell asbestos deal may be copied
Sunday February 2, 7:30 pm ET
By Christopher Bowe and Andrew Hill in New York
Honeywell's deal last week to escape asbestos exposure by selling its Bendix unit to a company in Chapter 11 is a creative use of bankruptcy law that could be repeated by others, legal experts said.
Federal-Mogul, a vehicle components maker under bankruptcy protection for asbestos liabilities, will take on the Bendix brake pads business, which has about $1bn in annual sales, solely in exchange for assuming its asbestos liabilities.
The acquisition sets off a process where Honeywell can receive a court order barring any more claims against it related to its ownership of Bendix. Such a move is potentially the first where a debtor made an acquisition with asbestos liabilities and helped the seller.
"When the debtor makes an acquisition, everything else flows," said David Berkin, attorney at Kirkland & Ellis in Chicago. "Depending on their circumstance, other companies would be interested in this structure."
That circumstance depends on finding a willing buyer and seller, with an asset that brings value to the group in Chapter 11.
These liabilities are then added to Federal-Mogul's existing pot of asbestos claims, which are paid for by a trust set up in bankruptcy reorganisation. Emerging from bankruptcy, Federal-Mogul is protected from future claims, and by extension Honeywell would receive the same treatment. Honeywell has a $2bn insurance provision that can be used to pay future claims against Federal-Mogul.
Federal-Mogul's deal was reviewed by its bankruptcy court judge and received considerable support from its creditor committees.
It plans to emerge from Chapter 11 this year with the asbestos claimants owning 50.1 per cent of its new shares in a trust to pay out liabilities. Existing noteholders will own the remaining 49.9 per cent of the company.
"This is a good deal for everybody concerned. It makes sense for the claimants. It makes sense for Federal-Mogul. And it makes sense for us, and common sense is likely to prevail," David Cote, Honeywell's chief executive, said.
Many otherwise healthy companies face significant asbestos exposure through units, but cannot, or will not take the whole group into bankruptcy.
Recent studies estimate nearly 60 companies are in bankruptcy protection due to asbestos claims, while asbestos-related litigation costs could reach $275bn.
Honeywell recently struck another settlement for its Narco unit, following settlements by ABB, Halliburton and Sealed Air.
One person close to negotiations in those deals said no one wanted bankruptcies and "the sound rational approach is to make compensation available now". For example, ABB would have been litigated for at least 10 years in 12 different countries without a settlement."
Best wishes,
I2 |
