Asbestos victims offered billions

The Baltimore Sun

W.R. Grace & Co. said yesterday that it has reached a deal that could be worth more than $3 billion to settle thousands of lawsuits by people who say they were sickened by exposure to the company's asbestos products.

The deal potentially clears a path for the Columbia-based chemical maker to emerge by year's end from one of the most complex bankruptcy reorganizations in U.S. history.

The accord, which would depend on approval by a bankruptcy judge in Pittsburgh, would establish a trust fund to pay current and future asbestos claims, which date back decades to when the company produced and sold products containing the substance.

Grace, which employs 6,500 people in 40 countries, sought bankruptcy protection in 2001 after being confronted by thousands of such claims.

"It's a significant recovery, but certainly not enough," said John D. Cooney, an attorney who helped negotiate the deal for victims. "In the final analysis, nothing will really compensate for people who lose their husbands or wives."

Cooney put the value of the settlement at more than $3 billion when cash, stock warrants, insurance payments and other elements are factored in.

Grace executives said they could not put a dollar figure on the deal because the company will make payments over many years.

In a conference call with analysts, Grace Chairman Fred Festa said the agreement allows the company to "once and for all" determine its asbestos liability, which consultants hired by the company and claimants had previously estimated at $385 million to $6.2 billion.

Uncertainty over the lawsuits and restrictions placed on the company in bankruptcy have hampered its growth for years. Grace faced 110,000 claims when it declared bankruptcy.

"It will take all further encumbrances away from us," Festa said in a phone interview yesterday afternoon. "A lot of the things we do have to get court approval. Now we can focus on one thing, and that's making the best products for our customers."

The claims against Grace stem from asbestos in the company's building materials and fire- protection products before 1973. Asbestos is known to cause lung cancer and mesothelioma, a lethal tumor of the lining of the chest and abdominal cavities.

Grace also mined and processed asbestos-containing vermiculite -- a substance used in insulation, potting soil and fertilizer -- in Libby, Mont., for 27 years. Much of the town was contaminated and many of its residents died or became sick with asbestos-related diseases.

Grace agreed last month to pay $250 million to remove contamination in Libby -- the largest cleanup settlement in the history of the federal government's Superfund program.

Grace said yesterday that it will take on a maximum of $1.5 billion in debt to emerge from bankruptcy and will seek a revolving loan of an undetermined amount.

Grace still has to settle cases dealing with attic insulation and property damage, but Festa said those should not affect the timetable to emerge from bankruptcy.

"The big nut was the personal injury claims when we declared bankruptcy, so this was a big one to get off of our docket," he said.

The settlement calls for Grace to make an upfront cash payment of $250 million to the trust. The company will then make annual payments totaling $1.55 billion from 2019 to 2034. Grace will put 50.1 percent of its common stock up as collateral to guarantee the payments.

The trust fund will also get proceeds from insurance that Grace had in place to cover asbestos claims. The company said yesterday that it has $917 million worth of coverage through solvent insurance carriers and $250 million through carriers that are undergoing some form of reorganization.

The trust fund also gets warrants to buy up to 10 million Grace shares for $17 a share -- well below yesterday's closing price of $26.83.

The fund will get about $1.2 billion more in assets from previous settlements with Sealed Air Corp. and Fresenius Medical Care Holdings Inc. Those companies purchased two former Grace business units just before the chemical maker's bankruptcy filing. Lawyers for asbestos claimants said the asset sales were fraudulent, arguing that Grace sold the units to shield itself from asbestos claims.

To get a piece of the settlement, claimants will have to apply to the trust fund. A panel will determine if the claim qualifies and then seek to determine an award amount, said Cooney, the victims' lawyer. The amount a victim receives will depend on such factors as age and severity of the illness.

"You'll have the right to recover a whole range of values depending on how you were personally impacted," Cooney said.

Under the settlement, Grace will be shielded from further personal injury lawsuits. Victims could sue the trust only if they are not happy with a settlement.

"This settles everything," Festa said. "They cannot sue Grace for any further asbestos liabilities in the future. They would have to go through the trust and say they were not being treated fairly."

The settlement doesn't erase all of Grace's problems.

Claims regarding Grace-made attic and wall insulation installed in millions of homes and offices are pending in federal court. It also faces complaints seeking damages for the cost of removing Grace products from homes and offices. More than 4,000 cases were brought against the company. It has 175 left to settle.

The company and some of its current and former executives still face criminal charges related to the Libby mine operation. They stand accused of knowingly exposing thousands of workers and residents near the mine to asbestos fibers for decades.

Festa said the criminal trial is separate from the bankruptcy proceedings.

Some victims were unhappy with yesterday's settlement.

Libby victims said they feared the settlement won't adequately replace the Grace-funded medical plan offered to Libby residents suffering from asbestos complications. Though Grace said the plan will continue after the company emerges from bankruptcy, Jon Heberling, lead counsel for the Libby victims, said there is nothing in writing to enforce that.

Libby resident Gayla Benefield, who lost both of her parents to asbestos disease and now suffers from it herself, says medical care is the most important issue to her. She spends about $900 every month on prescriptions and fears the amount she could receive from the settlement will not cover all her health costs, let alone adequately compensate her for her turmoil.

"When Grace jumps up and starts throwing money around, to tell you the truth, we would like to see the company crumble," Benefield said.

Heberling said he and Benefield disagreed with the proposed settlement. They want to make sure that Libby gets a "large piece of the pie" in the final settlement.

One legal expert said settling the suits removes a large hurdle from Grace's business.

"It puts the issue of payments to the asbestos claimants behind them so they can move on to their core business, which is definitely not defending lawsuits, but making the products they sell," said Alan Kopit, legal editor at lawyers.com. "If you had piecemeal cases, you could never quantify to any degree the extent of the liability. Now it quantifies itself and creates a fund for the claimants to tap into."

andrea.walker@baltsun.com paul.adams@baltsun.com

Sun reporter Megan Hartley contributed to this article.

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