W.R. Grace Reaches Settlement on Asbestos Claims

April 11, 2008

Douglas McLeod, Business Insurance, IL - W.R. Grace & Co., former asbestos producer, is hopeful about emerging from bankruptcy protection by early next year after reaching an agreement with asbestos claimants that could cover personal injury claims for up to $3 billion.

An agreement in principal with asbestos claimant and shareholder representatives was announced by W.R. Grace on Monday. The agreement involves the creation of a trust fund to pay current and future asbestos claims.

Grace, based in Columbia, MD still faces a number of hurdles. It must still file a Chapter 11 reorganization plan incorporating the deal and get approvals from bankruptcy and federal district courts.

W.R. Grace Chief Executive Officer Fred Festa said in a statement "A lot of work must still be done before we can confirm a plan of reorganization. I remain optimistic, however, that we will be successful in reaching that goal by the end of this year or early in 2009."

The following is what the asbestos claims trust will receive:

• Payments from Grace totaling $1.8 billion over 15 years, comprising a $250 million initial contribution; payments of $110 million a year for five years beginning in the year 2019; and $100 million a year for 10 years commencing in the year 2024.
• Within a year after the plan's confirmation, warrants to purchase 10 million shares of Grace stock at $17 per share. Earlier Tuesday, Grace shares were trading at around $26.50.
• Cash and stock totaling about $1.2 billion from earlier settlements with Sealed Air Corp. and Fresenius Medical Care Holdings Inc., which had acquired former W.R. Grace operations. According to Grace filings with the U.S. Securities and Exchange Commission, asbestos plaintiffs leveled successor liability and fraudulent transfer claims against the two companies, which settled in 2002, with Sealed Air agreeing to pay the Grace estate about $1.1 billion in cash and stock, and Fresenius agreeing to pay $115 million.
• Rights to the proceeds from W.R. Grace's liability insurance coverage which, according to SEC filings, could total as much as $917 million. Grace has a maximum of $487 million in excess liability limits available from insurers with which it has reached mesothelioma lawsuit settlements and as much as $430 million more from insurers with which it has not settled. The company reported that eligible asbestos claims would have to exceed $4 billion for W.R. Grace to recover the full amount of its excess coverage.

W.R. Grace filed for Chapter 11 protection in 2001. With 2007 revenues of $3.1 billion from specialty chemicals and other products, the company still has about 130,000 pending asbestos injury claims outstanding. Previously, in 2004 and 2005, the company had filed two reorganization plans. Those plans, however, were opposed by three asbestos claimant committees and two of those committees offered their own rival plan last year. The court has not yet ruled on that plan.

W.R. Grace still faces federal criminal charges that it had full knowledge that workers were exposed to asbestos at its Libby, Montana vermiculite mine. A small fraction of the pending claims against W.R. Grace are personal injury claims related to exposure at the Libby mine.