Federal-Mogul Allowed to Take Out $1.93 Billion Loan

A bankruptcy judge gave Federal-Mogul Corp. permission on Friday to borrow as much as $1.93 billion from a group of banks led by Citigroup Inc. to help fund its reorganization. The company will get a $500-million loan to help pay for operations while under court protection and $1.43 billion of financing for use after it exits bankruptcy. U.S. Bankruptcy Judge Raymond T. Lyons in Trenton, N.J., approved the financing at a hearing.

From Bloomberg, Detroit Free Press

SOUTHFIELD, MI — A bankruptcy judge gave Federal-Mogul Corp. permission on Friday to borrow as much as $1.93 billion from a group of banks led by Citigroup Inc. to help fund its reorganization.

The company will get a $500-million loan to help pay for operations while under court protection and $1.43 billion of financing for use after it exits bankruptcy. U.S. Bankruptcy Judge Raymond T. Lyons in Trenton, N.J., approved the financing at a hearing.

The $500-million loan replaces financing from JPMorgan Chase & Co. that was approved after Federal-Mogul’s October 2001 bankruptcy filing. The Southfield company said in court papers the loan would lower its borrowing costs. As of Oct. 1, the outstanding balance of the JPMorgan Chase loan was $382 million, court papers say.

The financing “will ultimately expedite” the company’s “successful emergence from Chapter 11, since the exit financing required for the plan to become effective will already be in place,” Federal-Mogul said in court papers.

Federal-Mogul sought bankruptcy protection following a slump in auto-parts sales and a surge in lawsuits from individuals claiming illnesses caused by asbestos-laden components, mostly brake pads, once made by companies acquired by Federal-Mogul.

Its plan to exit bankruptcy would give 50.1 percent of the reorganized company’s stock to current and future asbestos-injury claimants and 49.9 percent of the new shares to bondholders and other creditors. The exit financing is conditioned upon court approval of the company’s reorganization plan. A hearing to approve the plan is scheduled for Dec. 9.

The company said Friday third-quarter sales rose to $1.5 billion from $1.3 billion a year ago. The company’s net loss widened to $34.2 million from $29.5 million.

Asbestos, widely used as a fireproofing material until the 1970s, has been linked to lung ailments and a rare from of cancer that can surface years after exposure.

More than 70 former makers or sellers of asbestos-containing products have filed for Chapter 11 protection since 1982.

Approval of the financing follows an attempt by Federal-Mogul last year to negotiate a $350-million investment by a Citigroup unit. U.S. Bankruptcy Judge Randall Newsome, who previously presided over the bankruptcy case, rejected the financing in August 2003 for undisclosed reasons. That financing would have given Citigroup a 49-percent equity stake in the reorganized company.

Federal-Mogul shares fell 1 cent to close at 16 cents in over-the-counter trading. The shares were as high as $71.81 in 1998.

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