Two new asbestos chapter 11 cases were filed in the last two weeks. Both filings are interesting for various reasons. One of the filings was RPM putting into chapter 11 its Bondex business that previously produced joint compound material that contained chrysotile asbestos fibers in relatively small amounts. This press release describes the filing in more detail.
Market impact on RPM's stock price and debt rating ? Small. Here is Fitch's debt rating for RPM as issued after the chapter 11 filing; it's neutral. Here is a PowerPoint summarizing RPM's presentation and analyst questions; very little said of any real note. The stock ticker is RPM, and shows a price drop of less than 5 %.
The Bondex filing is interesting in that it is not a prepack. During the 2000s, multiple asbestos-related prepacks were ultimately approved. Hopefully those days are over because the prepacks did great violence to the rights of future claimants. Among other flaws, the prepacks tended to provide way too much money to people who were not sick. The prepacks also made a mockery of the rights of underlying case co-defendants to assert cross-claims or contribution claims against the entities in chapter 11. Insurers also were treated badly, but generally deserve little sympathy because they simply make case by case financial decisions that suit the insurers needs and reinsurance situation in a given case. That's regrettable in some ways because it means the chapter 11 system is deprived of advocates taking long term, principled positions on preserving insurance for those who are really injured or at real risk.
The Bondex prepack also is noteworthy for information set out in its "Informational Brief." An "Informational Brief" is the bankruptcy court equivalent of a white paper advocating a view.
Set out below are key excerpts from the brief. The brief and data are largely self-explanatory, but omit one key reality. The key reality is that current. solvent asbestos defendants are paying a huge price for disastrously bad rulings and outcomes in the early chapter 11s of the major "asbestos companies," such as Johns-Manville, UNARCO, and Raymark.
In short, the early chapter 11 cases took far too little money from investors in those corporations, and demanded far too little from their insurers. Why ? In short, because the parties were in a hurry to get to a "final" outcome to generate cash flow for their particular constituency. That rush to "finality" was a major mistake. The lawyers, judges and legislators failed to fully use science to look far ahead, and also failed to acknowledge all that they did not know. In short, they failed to appreciate that relatively lower levels of exposure would generate asbestos disease. The parties also failed to protect the money against massive raids by the not sick. The result? The Manville trust - the vehicle to supposedly solve all the problems - was broke the minute it opened its doors, and so the trust was soon back in chapter 11.
With that background in mind, consider the following excerpts from Bondex' Informational Brief, and note especiallyy the change in the claiming pattern against Bondex. According to industry records, Bondex was one of over 50 companies with less than 2% of the market for joint compounds. But, today, it is a named defendant in about 60% of annual mesothelioma case filings in the United States. Does anyone really beleive that mesothelioma victims had an uncanny knack for buying Bondex products ?
The Informational Brief states the following:
"Therefore, as early as 1980, even before the bankruptcy filing by Johns Manville, the world's largest vertically integrated asbestos producer, on August 26, 1982, plaintiffs' counsel in the asbestos litigation clearly knew that the Debtors existed and that they had manufactured and sold joint compound. Yet, during the 19-year period from 1980-1999, the Debtors paid a total of only $1.6 million in asbestos-related indemnity costs, demonstrating that before any major bankruptcy filing in the joint compound market, plaintiffs' counsel viewed the Debtors' joint compound products as a non-factor that played no material role in the causation of asbestos-related disease. 12 Significantly, even this relatively small amount of money ($1.6 million over 19 years, including third party insurance payments) represents to some extent inflated value because most of these claims arose after the Johns Manville bankruptcy filing and during the intervening bankruptcies of other asbestos giants, including Eagle-Picher, UNARCO and Celotex.
Although the Debtors were named in a limited number of asbestos lawsuits prior to 1999, the floodgates opened after the asbestos bankruptcy wave of 2000-2001. As they had in the past, plaintiffs' counsel began searching for of revenue to replace the payments that had up until that time come from then-bankrupt defendants, including USG. In the years following the USG bankruptcy, the Debtors' asbestos costs increased with a rapidity that is statistically and grossly out of proportion with any realistic assessment of Debtors' place in the joint compound market::
From 1980-1999: $1.6 million
Fiscal Year 2001: $10.6 million
Fiscal Year 2002: $43.0 million
Fiscal Year 2003: $52.0 million
Fiscal Year 2004: $63.0 million
Fiscal Year 2005: $67.4 million
Fiscal year 2006: $59.9 million
Fiscal year 2007: $67.0 million
Fiscal year 2008: $82.5 million
Fiscal year 2009: $69.4 million
Fiscal year 2010: $75.0 million
Additionally, since 2001, mesothelioma claims have increased against the Debtors substantially out of proportion to the incidence of mesothelioma filings in the tort system.This anomalous increase in mesothelioma filings again reflects over-naming or erroneous naming of the Debtors, as opposed to any realistic assessment of liability. The Debtors' mesothelioma filings, as compared with tort system filings of mesothelioma claims in general, demonstrate this striking difference:
Year Tort System Meso Filings Meso Filings vs. Debtors
2001 1600 150
2002 1700 200
2003 1750 650
2004 1850 600
2005 1775 790
2006 1775 1100
2007 1600 975
2008 1650 1025
2009 1800 1125
Note: all numbers approximate.