Federal-Mogul Plans Bankruptcy Exit by 2008

Federal-Mogul Plans Bankruptcy Exit by 2008 Federal-Mogul Corp. (USA, operating under Chapter 11 bankruptcy protection since October 2001) has once again announced it plans to exit bankruptcy soon. However, expected delays have just added yet another six months to the process, and it has been three years since the preceding plan was offered. Four days of confirmation hearings on this Fourth Amended Plan, as presented to the Bankruptcy Court in Pittsburgh, have been concluded but will continue again in mid-July. Once the next set of hearings in July is concluded, there will be another delay until October 1 when final arguments are currently scheduled to be heard. Although Federal-Mogul said the Fourth plan does not materially impact creditors or equity holders from the Third plan, some have disagreed, which would trigger the need for yet another vote which will delay potential approval by yet another six months or more after the October hearings. The change in the Fourth plan is that it now includes another class of asbestos injury claimants, and Ford, Chrysler and VWoA have all objected to the plan based on its treatment of Cooper Industries claims. A number of auto industry suppliers admit some doubt if Federal-Mogul is sincerely interested in exiting bankruptcy now, or is more than happy to see the process stall again. eBearing spoke to several industry veterans who believe F-M's machinations over the past six-plus years have been to prolong operations under bankruptcy protection, buying time for its core auto parts businesses to improve. "But now they've been in bankruptcy so long," noted one, "they missed the up market and auto sales have tanked again," creating a difficult business climate for suppliers such as Federal-Mogul. Another said: "Would you want to exit bankruptcy right now, jump without a net into the middle of this depressed auto supplier market? No, I think not." Beginning in the late 1990's, F-M went on an acquisition binge now decried as both ill-conceived and poorly executed. The acquisitions put F-M in a diverse range of automotive supplier-based businesses, but drained liquidity and were run with little attention to potential synergies or economies of scale. One of those ill-fated acquisitions was the 1998 purchase of UK's T&N plc, a manufacturer of brake materials which soon began to attract a rising flood of asbestos-related injury claims. Felt Products and Moog are also the targets of asbestos-related claims, as is Abex Friction from Cooper. Although the proximate cause of F-M's bankruptcy filing was the asbestos claims, most observers note that by early 2001 it was clear the core auto parts businesses would be forced into a deep and painful restructuring effort. Cash flow and liquidity were becoming a problem, servicing the leveraged debt. Then the asbestos litigation jumped to the fore, and F-M was forced into bankruptcy to fend off litigation while it developed a strategy to deal with the asbestos claims. By the time this round of final arguments is heard, Federal-Mogul's bankruptcy will have entered its seventh year. In contrast, United Airlines' recently-ended three-year bankruptcy was the longest and costliest in aviation history. The longest U.S. bankruptcy is likely the Moon Motor Car Company of St. Louis, lasting from 1931 to 1966. Pennsylvania's longest-running bankruptcy was Avtex Fibers, spanning 11 years from 1989 through 2000. Federal-Mogul will pass Avtex if it develops another Amended Plan in the same time frame as the last. One bankruptcy-experienced auto industry supplier told eBearing, "Federal-Mogul is no longer in bankruptcy, really; the intended effect of protecting and paying creditors has morphed into a kind of experiment in business planning. On the other hand, the asbestos litigation itself is a kind of experiment in social engineering. All in all, a mess. Anyway, many of us think Federal-Mogul will be broken up and the pieces sold off the minute it gets out of bankruptcy." About the latest development and delay until October, F-M's VP of Corporate Communications Marie Remboulis said: "We remain fully confident that the plan of reorganization will be confirmed. This will be done and this plan will be confirmed. It's a process that has to take its course."