Grace Reaches Asbestos Deal

Asbestos claimants have reached an agreement with W.R. Grace that may allow the firm to emerge from seven years of bankruptcy by the end of 2008.

The deal will set up a trust fund worth more than $3 billion to compensate all present and future asbestos-related personal injury claimants. Under the plan, reached with claimant representative committees set up by the U.S. Bankruptcy Court in Pittsburgh, Grace will make an initial cash contribution of $250 million to fund the trust and then pay a further $1.6 billion over 15 years. The company will also contribute rights to its asbestos liability insurance coverage, which could amount to about $900 million, and rights to buy 10 million shares of Grace stock.

In addition, the trust will contain cash and stock now worth about $1.2 billion from Fresenius Medical Care and Sealed Air, companies that had acquired former Grace businesses. An asbestos claimants committee had sued the two companies in 2002, charging that Grace "fraudulently transferred" assets to the new owners when it was technically bankrupt because of asbestos claims. Once the trust is set up, Grace will be shielded from further personal injury claims.

Grace CEO Fred E. Festa says the agreement "will be good for our shareholders, customers, creditors, and our employees." He adds that "a lot of work remains to be done before we can confirm a plan of reorganization, but I am optimistic we will be successful in reaching that goal by the end of this year or early in 2009."

One reason the bankruptcy case has dragged on for seven years is that Grace has forcefully contested asbestos claimants' estimates of its liability for about 100,000 outstanding claims. The Pittsburgh bankruptcy court judge was presiding over a trial to value the asbestos claims when the two sides struck a deal. Without the deal, the wrangling could have prolonged the bankruptcy case for several more years.

Grace still has to settle property damage and attic insulation claims. But the company says those issues shouldn't affect the timetable for emergence from bankruptcy.