Asbestos Bankruptcies

Why healthy, profitable, and financially stable asbestos manufacturers with at least some insurance coverage are filing for bankruptcy.

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Asbestos Bankruptcies — The New Wave

While the most recent spate of bankruptcy filings by asbestos manufacturers began chronologically with Pittsburgh Corning in 1999, it really began conceptually with the filing by Babcock & Wilcox shortly thereafter. The reason for this is that Pittsburgh Corning was expected to file — that company was facing a mountain of claims and had simply run out of resources to deal with them — whereas B&W was a healthy company with more than a billion dollars in remaining insurance coverage. Since then, the following major manufacturers have filed for bankruptcy protection: Owens-Corning, W.R. Grace, GAF, Federal Mogul (which encompasses Turner & Newall and Flexitallic, a gasket company), Armstrong World Industries, Harbison-Walker Refractories and North American Refractories. A host of less well known entities have also filed for bankruptcy, but that is not the immediate concern here.

For the most part, the above list consists of healthy, profitable and financially stable companies with at least some insurance coverage. They are continuing to operate profitably, as you will have discovered on any recent visit to Home Depot. This appears to be a part of a new and disturbing strategy pioneered by corporate bankruptcy lawyers to aggressively fight asbestos claimants, including those with mesothelioma, through the bankruptcy system, even though these companies are not really insolvent. The other factor driving these bankruptcies is Wall Street. The fact is, when Owens-Corning filed for bankruptcy, even after their National Settlement Program (known simply as the "NSP") had disposed of thousands of cases, it convinced the investment community that any asbestos company was an extremely bad risk, either to loan money to (by buying bonds) or to invest in by buying shares. The fact is, if you are a company in financial trouble, it is much easier to get credit if you file for bankruptcy. This is called "debtor in possession financing" and, as ordered by the Bankruptcy Court, money loaned on this basis is paid off ahead of all the other creditors. This is to enable companies to keep operating while they are under bankruptcy protection, and has the perverse effect of forcing otherwise functioning concerns to file — it is the only way they can raise cash in the capital markets.

The biggest issue in these bankruptcies is the differential between the payments of different categories of disease claims. One faction is pushing to have a large proportion of the money set aside to pay mesothelioma and other cancer claims. Other, larger firms, some of whom have tremendous political clout, want the lion's share of the available money to go toward paying minimal claims, because that is what those firms have more of (for example, of the roughly 100,000 claims filed last year, about 1500-2000 were mesothelioma claims, a few thousand more were lung cancer and disabled or impaired asbestosis claims, and the rest were all unimpaired claims, most from attorney-sponsored mass screenings).

Naturally, this fight also has the potential to tie up compensation for all victims for years to come. It also does not look like Congress is going to do anything about it, at least not this time around.

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