Former Asbestos Maker USG Considers Bankruptcy
By Rachel Cohen
NEW YORK, June 4 (Reuters) - Building materials maker USG Corp. (NYSEUSG - news) said on Monday it was exploring strategic options including a possible Chapter 11 bankruptcy filing because of mounting asbestos litigation costs and the slow progress of legislation that could control the costs.
It said its exposure to asbestos lawsuits has mounted since other companies have sought protection from creditors under Chapter 11. Its U.S. Gypsum unit has seen its personal injury costs, excluding insurance recoveries, balloon to an estimated $275 million this year from $162 million last year and $100 million in 1999.
Shares of USG were down $1.68, or 25 percent, to $5.04 in New York Stock Exchange trading on Monday.
Analysts were not surprised by USG's announcement on Monday.
"They've been saying for months that bankruptcy is an option,'' said Matthew Moyer, an analyst for A.G. Edwards.
Chicago-based USG, maker of top-selling Sheetrock wall boards and other building materials, said lawyers for asbestos plaintiffs have sharply increased their settlement demands in the wake of Chapter 11 filings by other companies.
"The situation has gotten progressively worse for the company as it has for any other company that's left to fight the asbestos litigations,'' said Jack Kasprzak, building materials analyst for BB&T Capital Markets in Richmond, Virginia.
As litigation costs have gone up, prices for gypsum wallboard, USG's core business, have plummeted, he said.
The company said other alternatives being examined include a new secured bank financing that would provide it with greater long-term liquidity.
The company said it had been lobbying Congress to enact laws that would minimize potential damages from asbestos lawsuits. It said the recent change to a Democratic majority in the U.S. Senate has prompted it to explore other options.
"We are making progress on the legislative front, but the process is not moving as quickly as we have hoped,'' said William C. Foote, chairman, president and CEO of USG Corp. "At the same time, settlement demands have increased dramatically to the point that they are completely out of proportion to our legitimate liability.''
Since the beginning of 2000, seven companies that were defendants in asbestos lawsuits have filed Chapter 11 petitions, the company said in a statement. Bankruptcy courts have stayed further litigation against those companies, it noted, but plaintiffs' attorneys have sharply boosted settlement demands to companies that have not filed Chapter 11.
Chemicals company W.R. Grace & Co. (NYSEGRA - news), building materials company Owens Corning (NYSEOWC - news) and a major unit of floor and ceiling maker Armstrong Holdings Inc. (NYSEACK - news) have filed for bankruptcy, citing asbestos litigation costs.
"There's yet to be a company that has survived the asbestos monster,'' said Trip Rodgers, an analyst with UBS Warburg.
*** POSTED JUNE 4, 2001 ***