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Bill could be boon for Grace & Co.


Of 74 U.S. companies forced into bankruptcy by asbestos lawsuits, Columbia-based W.R. Grace & Co. is among a handful that stand to gain the most from congressional efforts to set up a trust fund to compensate those sickened by exposure to the deadly fibers.

Legal experts and some critics of legislation moving through the Senate say Grace, which employs about 1,200 in Maryland, could see its asbestos liability slashed by as much as 87 percent, potentially freeing the company from bankruptcy and resulting in more than $1 billion in savings.

Just as important, some analysts say, a federal asbestos trust fund would put Grace one step closer to shedding its past and reforming a 150-year-old corporate image tarnished by allegations that it left a trail of sick workers and environmental contamination stretching from Montana to New Jersey.

The company, which makes chemicals used in everything from oil refining to construction materials, has been named as a defendant in 129,000 personal injury lawsuits related to asbestos products it produced decades ago.

"I hesitate to use the word windfall, but it would definitely be a favorable outcome for them," said Crystal Skinner, who tracks asbestos legislation for Susquehanna Financial Group. She pegs the odds of the bill passing this year at 30 percent.

Grace won't realize any of those savings if it emerges from bankruptcy before the bill passes, experts said. The company's reorganization plan requires it to create its own asbestos compensation fund, which the company says would be capped at $1.6 billion. Once that fund is established, the company is stuck paying that amount instead of the $500 million or less that it would pay under the proposed federal legislation.

"No one will say it publicly, but I think a majority of the larger asbestos cases have been stalled due to the efforts in Washington on the federal [asbestos] bill," said Peter Kelso, a senior editor for Asbestos Bankruptcy and International Asbestos Report newsletter. "Obviously, it is going to benefit them greatly, so the longer they play it out ... the more it will benefit them."

The asbestos-fund legislation faces intense opposition from some consumer advocates and asbestos attorneys, who say the fund is a bailout for the bankrupt companies and will leave too little for victims.

"We don't quibble with the general idea," said Chris Schmitt, civil justice researcher for watchdog group Public Citizen. "It's just that the implementation of this is very unfair to victims and comes at their expense and for the benefit of these corporations."

If the legislation becomes law, Grace's asbestos problems wouldn't go away, by any stretch. The company and some of its current and former executives still face criminal charges related to Grace's closed vermiculite mining operations in Libby, Mont. The company is accused of knowingly exposing thousands of workers and residents near the mine to asbestos fibers for decades.

The state of New Jersey announced this month that the company also faces a civil suit and potential criminal charges for allegedly lying about contamination at a former plant in Hamilton Township, which processed ore from Libby. Though the case will probably be settled for far less, New Jersey officials are pursuing fines that could top $1 billion, or $300,000 per day for the 10 years the company is alleged to have misled state environmental officials about the contamination.

In addition, the company faces suits in Canada and the United States that wouldn't be erased by the trust fund, as well as environmental cleanup costs and potential federal fines related to past business practices.

In regulatory filings, Grace estimates that it could face $204.2 million in environmental cleanup costs in Libby and at several other sites that received ore mined in Libby. The company also might face millions of dollars in additional cleanup costs related to other sites.

But some industry experts and economists say Grace remains a fundamentally sound company if the uncertainty associated with the personal injury suits is stripped away. The company reported a 14 percent increase in 2004 sales and pretax income from core operations of $179.3 million, up nearly 21 percent from 2003. Asbestos liability charges resulted in a loss of $402.3 million for the year.

"The managers -- at least the ones running the company now -- are doing a good job," said Emory University economics professor George J. Benston, who published a study of companies forced into bankruptcy by asbestos lawsuits. "The sensible thing to do is let them keep running and extract as much as you can from them short of killing them."

The peril for companies such as Grace is that they have no way of knowing how big their asbestos troubles will get, because new victims continue to come forward. Establishing a federal asbestos fund would put an end to the uncertainty, Benston said.

It's similar to what happened to tobacco companies hit with lawsuits from smokers, he said. Investors fled from tobacco stocks in the late 1990s, fearing that litigation could drag the companies into bankruptcy. Once the tobacco industry reached a $206 billion settlement deal with 46 states in 1998, tobacco companies saw their shares rebound.

"Certainly, a very important aspect of anyone's business is knowing what you're going to have to do and not having something hanging over your head," Benston said.

Once their liability is established, companies caught in asbestos litigation can get back to making money for shareholders and retirees who rely on company stock for their pensions, industry advocates say.

"It lets them become productive, functioning companies again," said Jan Amundson, who chairs the Asbestos Alliance, a group that includes many of the companies in bankruptcy.

Just how much Grace would benefit from congressional action is a matter of dispute. The bill would create a $140 billion trust fund that would compensate victims who can show they were harmed by exposure to asbestos products. Companies named in the suits each would contribute to the fund using a formula based on company sales.

Skinner estimated that Grace would pay about $500 million into the fund under the proposed legislation. If no bill is passed, the company has said in bankruptcy and regulatory filings that it would seek to create its own compensation fund totaling no more than $1.6 billion, or roughly enough to pay $2 billion in claims when interest is factored in.

But lawyers suing Grace say the company should pay significantly more. The conflict has delayed the company's bankruptcy reorganization. None of the attorneys representing asbestos victims or creditors in Grace's bankruptcy would comment for this article. Grace officials also declined to comment.

Public Citizen puts Grace's asbestos liability at nearly $3.2 billion. By contrast, the group says, its contribution to the proposed federal asbestos fund would be $418 million, an 87 percent savings if the bill becomes law.

Other asbestos litigation experts say the real number probably lies somewhere between the estimates provided by Grace and Public Citizen. Grace has asked the bankruptcy court to begin a process to determine its liability.

"The numbers may be a little inflated," Kelso said of Public Citizen's numbers. "But it's not too far off percentage-wise in how much they say Grace would benefit under this bill."

W.R. Grace & Co.

Headquarters: Columbia

Products: chemicals for oil refining, building materials, etc.

2004 revenue: $2.3 billion

Employees worldwide: 6,500

Maryland employees: about 1,200

Bankruptcy: filed in 2001

Number of personal-injury asbestos claims pending: 129,191

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