Alexa
  • Directory of Taiwan

Big automakers object to Federal-Mogul bankruptcy protection plan

Big automakers object to Federal-Mogul bankruptcy protection plan

Federal-Mogul Corp. has met resistance on its Chapter 11 bankruptcy protection plan from three big U.S. auto makers just weeks from a court hearing on the car-parts maker's bid to exit bankruptcy.
The Southfield, Michigan, maker of car parts is poised to end a six-year stay in bankruptcy by becoming the property of billionaire investor Carl Icahn. Lawyers have said that complications of Chapter 11 bankruptcy protection make it tough to deal with bankrupt suppliers.
Yet Ford Motor Co., DaimlerChrysler Corp. and Volkswagen of America Inc. are upset about the terms of Federal-Mogul's Chapter 11 plan. The auto makers claim the plan would unfairly shield Houston manufacturer Cooper Industries Inc. from asbestos liability involving a brake-pad company it sold to Federal-Mogul in the 1990s.
Cooper is not in Chapter 11, but the company wants to put money into a trust that will be set up under Federal-Mogul's Chapter 11 plan and that would absorb the company's asbestos liabilities. If that occurs, that would leave Ford, DaimlerChrysler and Volkswagen exposed to a bigger share of damages for the automotive industry's asbestos liabilities than they think is fair. Federal-Mogul's Cooper deal "can fairly be seen as a Chapter 11 debtor's effort to sell bankruptcy code protection," lawyers for DaimlerChrysler and Volkswagen wrote in court papers filed this week with the U.S. Bankruptcy Court in Wilmington, Del.
Cooper Industries is not bankrupt, and should not get the protections of Chapter 11, they said.
Lawyers for Federal-Mogul went before a bankruptcy judge Thursday in an all-day session meant to set the stage for a June 18 confirmation hearing. The lawyers were not available to respond to the Chapter 11 objections from DaimlerChrysler, Volkswagen and Ford.
In past hearings, however, Federal-Mogul attorney James Conlan has said the Chapter 11 plan has a fail-safe mechanism that means Federal-Mogul can get out of bankruptcy even if the deal with Cooper is ruled illegal.
The car makers do not like Federal-Mogul's "Plan A" option, which calls for Cooper and Pneumo Abex _ the brake business it sold _ to put $256 million (euro190.05 million) in cash into Federal-Mogul's trust. Cooper would also put up a $500 million (euro371.2 million) note, payable at the rate of $20 million (euro14.85 million) a year if Federal-Mogul's Chapter 11 trust runs out of money.
Asbestos claimants like Federal-Mogul's Plan A, which gives them fewer companies to sue, but a larger pot of money in one place to collect against.
Federal-Mogul's "Plan B," the fail-safe mechanism, kicks in if the court throws out the "Plan A" deal.
Under "Plan B," Cooper and Pneumo Abex don't get to send asbestos claimants looking toward Federal-Mogul's Chapter 11 trust for payment. Federal-Mogul's trust doesn't get the cash, either.
Instead, "Plan B" calls for Federal-Mogul to pay Cooper and Pneumo Abex $140 million (euro103.93 million), which would end Federal-Mogul's asbestos-related liability to Cooper, and leaves Cooper and Pneumo Abex open to asbestos lawsuits.
Federal-Mogul lawyers have said in the past that Plan B ensures that a successful challenge to the Plan A Cooper deal will not be fatal to the company's Chapter 11 plan. The car makers are not objecting to Plan B.
Billions in asbestos liabilities drove Federal-Mogul into Chapter 11 bankruptcy protection in October 2001. To get out of bankruptcy and join Icahn's burgeoning automotive parts group, Federal-Mogul has to channel the asbestos damages off its balance sheet and into a trust that will cover the claims.
The Chapter 11 plan splits ownership of reorganized Federal-Mogul between asbestos creditors and commercial creditors, of which Icahn is the largest. Icahn plans to buy out the asbestos creditors' half of the company, once Federal-Mogul is out of Chapter 11. Icahn is also buying Lear Corp., another maker of car parts located in Southfield, Michigan.
Peg Brickley is a correspondent for Dow Jones Newswires.


Updated : 2021-10-26 04:01 GMT+08:00