USG Asbestos Agreement: Nearly $4 Billion

The maker of gypsum wallboard may finally emerge from bankruptcy later this year.

USG Corp. announced that it has agreed to pay as much as $3.95 billion to settle asbestos-related claims. The maker of gypsum wallboard added that later in 2006, it expects to be able to emerge from bankruptcy after what is now nearly five years.

Under the agreement, USG will establish a trust to pay personal injury claims related to asbestos, funding it with $900 million in cash and a $3 billion-plus contingent note. The note would reportedly be canceled if Congress creates a national asbestos trust fund.

Financing is expected to be provided from USG’s cash on hand, a $1.8 billion rights offering to existing stockholders backstopped by Berkshire Hathaway Inc., tax refunds, and new long-term debt. Under the rights offering, Berkshire, which owns 14.6 percent of USG, will buy whatever stock isn’t purchased by current shareholders, explained Bloomberg.

“This agreement will achieve the key goals we established when USG and its subsidiaries filed Chapter 11 in 2001,” said chairman and chief executive officer William C. Foote, in a statement. “Upon final court approval, our trade creditors, bank lenders, and bondholders will be paid in full, in cash, with interest; USG and its subsidiaries will emerge from Chapter 11 free of all asbestos personal injury claims; significant shareholder equity will be preserved; and we will emerge with a solid balance sheet that will enable us to continue to invest and grow the company.”

At one point on Monday after the announcement, USG’s share price had risen as much as 24 percent; it closed about 20 percent higher on the day.

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