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USG Corporation Message Board

  • fbertital fbertital Nov 21, 2004 3:08 PM Flag

    When will USG offer a plan for exiting

    bankruptcy or chapter 11? Waiting for the Legislators seems to be as distant as the Second coming of Christ.The legis. always find something to object to. USG will ultimately haveto pay something why not get over with.

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    • BGZoo,

      A nosy question from a lurker. From your message of 11/23/04, it appears the current market price is approaching the lower end of a conservatively calculated stock price based on a $2.5B asbestos liability (no legislation) and a lower end enterprise value of approx. $3.4B. Any thought about taking some off the table now?

    • Hey, you too. Have a good day, Thanksgiving or not.

    • Thanks Psy. Have a great Thanksgiving!

    • So what is the estimated share price at a 10 multiple?

    • Jimmysue, FYI,

      Legal Proceedings, 08/14/01, USG estimate of liability thru 2003.

      You've probably already read this stuff. But still a good reference as to how USG saw its liabilty at the time of filing bk. And why I say liability will be around $1.5bl

      Of course, as USG states, their estimated liability can and will change.

    • <I note your estimated range of liability has increased from the $1.5 to $2.0 billion as of a couple years ago to $1.5 to $2.5 billion (pre-tax) today. Would your range of Gross Value of USG also have changed over the last two years? Assuming yes is your answer (your range was $2.8 to $3.6 billion), do you have a new estimated range?>

      My opinion of the bottom of the range of likely settlements has not changed, but it has firmed up. The original proposed legislation called for USG to pay what amounted to a PV of around $750 million. Since then, the offer has increased from $108 billion to $140 billion. I haven't seen any new breakdown of liabilities by Tiers, but I assume USG got a disproportionate share. My guess is that the PV of their payments under legislation is well in excess of $1 billion.

      From a "USG druthers" perspective, I believe a 524g settlement is preferable to legislation, because a 524g settlement is final. Legislation could sunset if claims swamp the new fund (I think a sunset would be unlikely, but possible). So if I am on the other side of the table, I am certainly going to demand a premium for a 524g settlement versus what the company is offering in proposed legislation.

      The high end of the range depends on how horny both sides are for a deal. I have absolute confidence that USG's management team won't cave in to nonsensical demands, but both sides have good negotiators, and leverage can shift either way depending on future court rulings.

      As an aside, the ACC/FCR term sheet revealed an important concession from the asbestos claimants. They basically acknowledged what bond investors had long anticipated - payment at par with all accrued interest. That is not a small step, and it is very unusual in bankruptcy cases. So now they are left arguing, "well, our claim is so large the equity should be wiped out and we should get the keys to the company because we, and only we, out of the goodness of our hearts, are taking a haircut on our claim". Uhhm, okay.

      With respect to the enterprise value for USG, I think the range of potential enterprise value estimates is now much higher. If you look at other building products companies, EBIT multiples range from around 6 to around 10. The fair multiple for USG depends how durable their franchise is, their growth prospects, their competitive position, etc. USG now has an EBIT run-rate of around $550-$600 million, and has good prospects as the commercial real estate recovery takes hold.

    • Doddsville/BGIG,

      �It is both wise and prudent for USG to be preemptive re this point (subcon filing) prior to the estimation hearings.�

      Yes, it�s a good idea to cut the ACC�s legs off before they try to stomp you at the estimation hearing, especially when USG has a good issue on which it should prevail.

      �To recapitulate: The ACC is fucked, and they know it.�

      They�ll know it even more tomorrow (hopefully) at the first status conference before the new district judge in the Armstrong case. The committee of unsecureds is fighting hard to overturn BK judge Newsome who accepted Peterson�s inflated asbestos estimates at the confirmation hearing last year. With Wolin out the �fix� is gone, and help is NOT on the way from Kerry and his Breck girl.

    • I can agree with that assessment although I don't believe it is a slam dunk just yet. Time is also not the friend of USG, hasn't been since 2001. They can stall a bit for the estimation and prospects of legislation but the company too wants out of this mess. In the end, I think they will be willing to give up a little bit more than people expect to get out the door without further litigation.

    • dowfin1,

      RE: << I figure the purpose of the subcon filing is twofold 1) set a ceiling on the asbestos liability equal to the EV of US Gypsum even if USG should be unsuccessful at the later estimation hearings, and 2) settlement discussions. But why have the subcon issue decided first? >>

      I respectfully offer the following:

      1) To set a floor on the stock price by precluding portions of the company (USG) from even being considered to be subjected to any asbestos liability. That is to say; if you believe the true value of USG today � absent any asbestos liability � is say worth $70. And you believe that all the components of USG (less US Gypsum) are worth say 45% of the whole, you arrive at a value of $31.50 that is still intact, and not affected by any potential asbestos liability. Additionally, and more directly tied to your query:

      2) It is both wise and prudent for USG to be preemptive re this point (subcon filing) prior to the estimation hearings. For example; take the scenario (one I frankly do not foresee) in which the estimation hearings arrive at a number that overwhelms US Gypsum. If USG, only at that time, introduced its subcon filing, it would appear to all, including the court, that USG was simply playing a defensive strategy - after the fact.

      Being somewhat familiar with USG, I am confident that all subsidiaries were set up legally, appropriately, and ethically. In no way can it be proven that USG set up any of its subsidiaries to somehow circumvent any subsequent potential asbestos liability. Therefore I believe (am virtually certain) it (USG) will win its subcon filing.

      To recapitulate: The ACC is fucked, and they know it. Hence, I believe a �deal� will be made. FAIR is simply background noise, but as it gets louder the �deal� becomes more imminent.

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