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For Grace, a long road out of bankruptcy court

Financially Distressed CompaniesBankruptcyPropertySalesBusiness

Chemical maker W.R. Grace & Co. is about to go where it hasn't been for nearly 13 years: out of bankruptcy.

The Chapter 11 case, one of the longest on record, got underway as the Columbia-based company faced more than 100,000 asbestos-related claims. Now, after negotiations, settlements and numerous appeals, Grace said it is finally on the brink of emerging from court protection — possibly as soon as Monday.

In between, Grace agreed to pay all creditors in full, acquired more than two dozen companies and pushed its stock from $1.52 a share to more than $90.

"This is just an absolutely amazing Chapter 11 case," said Peter A. Chapman, president of Bankruptcy Creditors' Service, which publishes newsletters about corporate restructuring. "Usually equity is wiped out, and claimants and bondholders get paid a fraction … of what they're owed."

Grace officials said they look forward to once again doing the sorts of things normal publicly traded firms can do — like return cash to shareholders. The case has dragged on so long, it predates CEO Fred Festa's tenure at Grace by 21/2 years.

"There will be some who will say that nothing changes when we emerge from bankruptcy," said Rich Badmington, a Grace spokesman. "I can't help but think that people will think of us differently."

People with asbestos claims — including pipe fitters, construction workers and others who said they were sickened after exposure to Grace products — are eager to see the company emerge, too. They've had to wait all this time to get paid.

"It's been a long, hard slog, and it's gratifying that we appear to be at the end of the road," said Peter Lockwood, one of the attorneys representing a personal-injury claimants' committee in the Grace case.

Scott Baena, bankruptcy counsel for the official property damage claimants' committee in the Grace case, can't believe that it's just now about to happen — 11 years after a key asbestos settlement in the case.

"This has taken too long," he said.

Grace — which employs nearly 1,100 people in Maryland — makes specialty chemicals and materials across the globe. Products range from coatings that keep soda from tasting like the can to catalysts used in refining oil and shale gas.

But the 160-year-old company was once a classic conglomerate with fingers in many more pies. It established a bank. Ran a Grace line of passenger ships. Launched an airline. Owned hundreds of restaurants. Sold fire-protection products. Acquired Zonolite, a company that sold insulation made with vermiculite.

The Zonolite acquisition is what got Grace into financial trouble later. A naturally occurring, particularly toxic asbestos was laced through the company's vermiculite mine. Grace also added asbestos to some of its fire-protection products before the Environmental Protection Agency banned the practice in 1973.

Asbestos fibers can be lethal, damaging lungs and causing certain cancers. Grace followed competitors into bankruptcy protection after claims against it spiked in 2000, largely related to the fire-protection products.

The vermiculite problem engulfed an entire town.

Zonolite had a mine and mill just outside the small community of Libby, Mont. Grace, which acquired the company in 1963 and ran the Libby operation until 1990, said it wasn't aware of the "extent of hazards" when it bought in.

Between the vermiculite dust that traveled off the site and materials from the mine used in town, contaminants spread everywhere — homes, businesses, school ball fields. Hundreds of people, including some who never worked for Grace, fell sick. Residents died of asbestosis, a chronic lung disease, and cancers such as mesothelioma.

A series of newspaper articles brought attention to the problem. The Seattle Post-Intelligencer reported in 1999 that asbestos was killing Libby's residents and that Grace had done nothing to stop it despite knowing of the problem since the beginning of its ownership there.

The EPA sent a team to investigate, then initiated a major cleanup. Sen. Max Baucus of Montana declared it "the worst public health disaster in U.S. history." The federal government pursued criminal charges against the company and former executives — a case resolved in 2009 when the parties were acquitted of knowingly endangering Libby residents.

Grace, which agreed to contribute $250 million to cleanup efforts in a settlement with the EPA and the Justice Department, maintained that it behaved responsibly. It said it spent millions on medical care for Libby residents.

But in Libby, Grace remains persona non grata.

"It was just wrong what they did," said Doug Roll, the town's mayor, who so far has limited damage to his lungs and hopes it stays that way.

Libby isn't the only town where lethal health problems were blamed on Grace. In 1986, the company settled with families in Woburn, Mass., after five children and one adult died of leukemia, illnesses the families' lawsuit said were caused by water contamination after chemical dumping by Grace and two other firms. Grace said during the case — which prompted a book and movie — that the chemicals do not cause such illnesses.

Roll, Libby's mayor, doesn't think Grace's emergence from bankruptcy will mean anything for the town. The "vast majority" of the EPA-supervised cleanup is done, he said, and residents whose health was compromised have been allowed to get Medicare coverage early.

"Most of us are trying to get this behind us so that Libby can move forward," Roll said.

For the claimants waiting to be paid, the end of bankruptcy is much more significant. The value of settlements worked out years ago for property-damage claims has fallen with time because the deals don't include interest, said Baena, the bankruptcy counsel for the property-damage claimants' committee.

Appeals by other companies, including lenders looking for higher interest payments, added years to the wait. But Baena said Grace, which was able to conduct business almost as usual, wasn't agitating to move the case along faster.

"They almost became indifferent to it by virtue of becoming accustomed to it," Baena said. "And that's not infrequently the problem with long-running bankruptcies — culturally, everybody gets accustomed to it taking a long time, and it takes even longer."

Grace's Badmington said the company was anxious to get out of bankruptcy in part to see claims paid. Its asbestos trusts will be funded at more than $4 billion, which includes cash, insurance payouts, Grace stock and contributions from companies that bought Grace units.

Though creditors will be paid in full, asbestos claims will not. That was part of the compromise between Grace and claimants, said Lockwood, the personal-injury claimants' committee attorney. Payments will be on 25 percent to 35 percent of the value of each claim, likely at the high end of the range, thanks to Grace's high-flying stock, he said.

"As far as I know, the people [with claims] feel like they're getting a good deal because it was a complicated set of issues as to how you value hundreds of thousands of present and future claims," Lockwood said.

As such issues were worked out very slowly, Grace kept growing.

In 2000, the year before it filed for bankruptcy, the company reported $90 million in losses. Compare that with the $94 million in profit Grace said it produced in the 12 months ending Sept. 30 of last year, the latest date for which data are available.

Total sales, meanwhile, went from about $1.6 billion the year before bankruptcy to more than $3 billion in the most recently reported 12 months.

Grace made 27 acquisitions while in bankruptcy protection. Most recently, it paid $500 million for a Dow Chemical Co. unit that greatly expands the company's business in polypropylene licensing — charging for the technology companies need to make resins for plastic products.

"That is such an unusual thing to happen in a bankruptcy case," said Chapman, with Bankruptcy Creditors' Service. " 'A debtor is buying another company? What?' But all the way through, everybody was supportive of those acquisition transactions."

Grace's stock price is so high now that investment analytics firm StarMine considers it overvalued. But Chris Shaw, an analyst with Monness, Crespi, Hardt & Co., thinks the price is about right.

"That speaks to, I think, investors' view of the strength of their business units and the growth potential heading into 2014," Shaw said. "Core businesses have been strong for a number of years. … That should continue."

Grace, which moved shop several times since its founding in Peru in 1854, has been based in Columbia since 1999. Its employment is split between its headquarters off Route 32, which includes a research-and-development operation, and a manufacturing plant for multiple product lines in Baltimore's Curtis Bay.

Some of its bankruptcy growth has spilled over to that physical footprint.

The company is in the midst of constructing a new headquarters building that should be done in March. It's upgrading the Baltimore facility, too.

"Obviously, the flagpole's going to be here," Badmington said. "We're not thinking about going anywhere."

jhopkins@baltsun.com

twitter.com/jsmithhopkins

Copyright © 2014, The Baltimore Sun
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