From Bloomberg, MEMA Industry News
TRENTON, NJ — Federal-Mogul Corp. is asking a U.S. bankruptcy judge for permission to borrow as much as $1.93 billion from Citigroup Inc. to help fund its reorganization.
Federal-Mogul, the world’s largest maker of engine bearings and seals, asked U.S. Bankruptcy Judge Raymond T. Lyons in Trenton, N.J., on Saturday to approve a $500-million loan to help pay for operations during reorganization and $1.43 billion of financing for use after the company exits bankruptcy. Billionaire financier Carl Icahn, who is Federal Mogul’s largest creditor, and other bondholders support the company’s request, according to a lawyer involved in the negotiations.
“We are very much in support of it,” said Peter Wolfson, lawyer for the Federal-Mogul creditors committee. “We invited several financial institutions to make offers. Citigroup gave us the best proposal and we negotiated a deal that was very satisfactory.”
The new funding would give Federal-Mogul “a very substantial cash cushion” and more favorable terms than existing borrowings, Wolfson said. The $500-million loan would replace bankruptcy financing from JPMorgan Chase & Co., which was approved by a judge days after Federal-Mogul’s October 2001 Chapter 11 filing.
The Southfield, Mich.-based company filed for bankruptcy after a surge in lawsuits filed by people who said they were exposed to asbestos by companies that were later acquired by Federal-Mogul.
Federal-Mogul’s plan to exit bankruptcy would give 50.1 percent of the reorganized company’s stock to current and future asbestos-injury claimants and 49.9 percent of the new shares to bondholders and other creditors. A hearing to approve the recovery plan is set for Dec. 9, Wolfson said.
The new loans “will help facilitate an efficient and cost-effective transition” out of bankruptcy, Federal-Mogul said in court papers filed Saturday.
A hearing on the company’s request for the loan is scheduled for Oct. 22, court papers show.
Asbestos, widely used as a fireproofing material until the 1970s, has been linked to lung ailments and a rare form of cancer that can surface years after exposure to the material.
More than 70 former makers or sellers of asbestos-containing products have filed for Chapter 11 protection since 1982.
The company’s shares were unchanged at 18 cents in over-the-counter trading. The shares were as high as $71.81 in 1998.
Federal-Mogul’s 7 3/8 -percent bonds maturing in 2006 traded at between 29.5 cents on the dollar and 31 cents on the dollar, traders said.
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