8th June 2007 - Automakers Raise Objections to Federal-Mogul Bankruptcy Plan

Ford Motor Company, DaimlerChrysler and Volkswagen of America have raised objections to Federal-Mogul Corp.’s proposed exit from bankruptcy.  The automakers object to a plan to shield Cooper Industries and Pneumo Abex from future asbestos liabilities from the brake-pad company sold to Federal-Mogul in the 1990s.

Under this plan Cooper Industries and Pneumo Abex proposes to put $256 million in cash into Federal-Mogul's asbestos trust. Cooper would also put up a $500 million note, payable at the rate of $20 million a year if Federal-Mogul's Chapter 11 trust runs out of money.

The automakers object that Cooper and Pneumo Abex are not in bankruptcy and are attempting to buy their way out of future asbestos liabilities.

If this plan fails, as an alternative, Federal-Mogul will have to pay Cooper and Pneumo Abex $140 million ending Federal-Mogul's asbestos-related liability to Cooper, and leaving Cooper and Pneumo Abex open to future asbestos lawsuits.

Federal-Mogul’s bankruptcy plan splits ownership of a reorganized Federal-Mogul between asbestos creditors and commercial creditors.  Carl Icahn is the largest Federal-Mogul creditor and plans to buy out the asbestos creditors' half of the company once Federal-Mogul is out of Chapter 11.  Icahn is also buying Lear Corp., another maker of car parts located in Southfield, Mich.

Source: Various Sources