Federal-Mogul struggles to exit Chap. 11
PHILADELPHIA --Federal-Mogul Corp. has resolved a key dispute that threatened to delay its exit from bankruptcy, but the judge overseeing the case remains skeptical the company will meet its goal of wrapping up its six-year Chapter 11 reorganization by the end of 2007.
Lawyers for the struggling auto-parts company said at a court hearing Wednesday that Federal-Mogul has come to terms with PepsiAmericas Inc., the lone objector to a key piece of its Chapter 11 plan. But it has yet to resolve objections -- mainly from insurance companies -- to other parts of the plan.
Under the circumstances, the company's bid to get its bankruptcy plan confirmed by the end of December is "just an impossibility," Bankruptcy Judge Judith Fitzgerald said. Federal-Mogul has been rushing to beat a Dec. 31 deadline, but if its Chapter 11 plan isn't confirmed by then, the company risks losing the favorable terms it secured on a $3.5 billion bankruptcy exit loan from Citibank.
"We are sweating the days," James Conlan, a Federal-Mogul attorney, told Fitzgerald.
Conlan said Wednesday that PepsiAmericas agreed to drop its objection to the Chapter 11 plan. The bottling company was the sole objector to the "B" version of Federal-Mogul's plan.
Based in Southfield, Mich., Federal-Mogul filed for bankruptcy protection in 2001 after it was hit by a wave of lawsuits alleging the company was liable for asbestos-related damages at several companies it acquired. One of those companies was brake business Pneumo Abex Corp.
Federal-Mogul's "A" and "B" Chapter 11 plans differ in their treatment of the liabilities involving Pneumo Abex. The company and its asbestos creditors would like to see court approve the "A" plan, but are prepared to back the "B" plan, Conlan said. Court approval of the "B" plan is all Federal-Mogul needs to obtain to get its exit loan before the Dec. 31. deadline.
PepsiAmericas is linked to Federal-Mogul's asbestos troubles because one of its predecessor companies once owned a Pneumo Abex predecessor. Cooper Industries Ltd. of Houston also owned Pneumo Abex before selling it to Federal-Mogul.
Cooper and Federal-Mogul battled for years over which of them should pick up the tab for the brake business' asbestos liabilities before agreeing to the "A" and "B" settlements in Federal-Mogul's Chapter 11 plan. PepsiAmericas joined the fray just this year, insisting that the settlement Cooper and Federal-Mogul reached jeopardizes its rights to insurance coverage purchased nearly four decades ago.
The settlement announced Wednesday removes the need for the judge to grapple with complex arguments PepsiAmericas raised about the "B" version of Federal-Mogul's plan. Objections to the "A" plan remain, but Federal-Mogul can exit bankruptcy even if the "A" plan is rejected.
That leaves Federal-Mogul racing against the clock to resolve objections to its Chapter 11 plan by insurance companies, led by Travelers Cos. Inc. and OneBeacon.
Fitzgerald is slated to hear final arguments Monday in Pittsburgh from insurers who say their rights are being discounted in Federal-Mogul's plan, which directs asbestos damage claims away from the operating company and into a trust that will be funded in part by proceeds of insurance coverage.
On Wednesday, Fitzgerald said she intended to force insurers to the negotiating table with Federal-Mogul, issuing an order "attaching" executives of the objecting insurers, meaning they are legally bound to devote their time to talks with Federal-Mogul. The order entitles Federal-Mogul to drag insurance company officials to Pittsburgh and lock them in a conference room if necessary to get settlement talks going, she told Federal-Mogul's lawyers.
"Go get them. They're mine," the judge said.
