Court approves EnPro's reorganization plan

CHARLOTTE, N.C.—EnPro Industries Inc. is moving toward resolution of a decades-long process of handling asbestos claims after support of a reorganization plan by a bankruptcy court.

The U.S. Bankruptcy Court for the Western District of North Carolina recommended that the district court approve a joint plan of reorganization that would create a trust to handle asbestos claims and allow Garlock Sealing Technologies L.L.C. and Coltec Industries Inc. to be reconsolidated with EnPro.

The U.S. District Court for the Western District of North Carolina, which acts independently from the bankruptcy court, scheduled a hearing June 12 to consider the recommendation. The court completes a de novo review, which means the district court can choose to disregard the bankruptcy court's recommendation, and will issue its own determination. If approved, the reorganization plan would go into effect after a 40-day waiting period for appeals, according to Rick Magee, consultant and former senior vice president and general counsel for EnPro.

The plan establishes a trust to handle current and future asbestos claims through Chapter 11 bankruptcy, section 524(g) for Garlock, Coltec and other subsidiaries, totaling $480 million, according to documents from EnPro. That funding includes $400 million paid into the trust immediately, with $20 million worth of stock and $60 million more to be paid within a year of the establishment of the trust. The trust will be managed independently by Lewis Sifford of Dallas, who has experience with other asbestos-claims trusts, Magee said.

Once the trust is established, Sifford will handle the claim process for current and future claims, including paying those claims when appropriate. EnPro will provide information as necessary, but otherwise is not involved in the claims process at that point, Magee said.

All deconsolidated entities that were separated as part of the bankruptcy procedure will be reconsolidated with EnPro's financials going forward.

Fighting claims

The bankruptcy process is the culmination of asbestos-related cases naming Garlock going back to 1975, making claims mainly against Garlock's compressed asbestos sheet gaskets and asbestos packaging. Garlock was named in the suits with as many as 20 to 50 other industrial manufacturing defendants that also created products containing asbestos.

By 1977, Garlock had placed Occupational Safety and Health Administration warnings on all its asbestos products, even though the amount of asbestos exposure involved in its gaskets fell below OSHA limits at the time, according to court documents. In the 1980s, Garlock began developing asbestos substitutes for products, completely ceasing manufacture of asbestos products in 2001.

From 1975 to 2010, Garlock was named in about 835,000 asbestos cases, and paid out about $1.37 billion to plaintiffs. Between 1980 to 2000, that meant about 39,000 new cases every year. Although it established a good track record of defending itself against claims when they went to trial, managing the many cases through discovery and trial could still cost $100,000. In the early 1990s, Garlock paid about $1,200 per case to settle a lung cancer claim, and about $2,800 per mesothelioma case, according to court documents. For non-malignant claims, Garlock would pay about $1,000 to $2,000 to settle.

The volume and value of claims increased during the 90s, and by 1999, Garlock paid about $9,100 to settle mesothelioma claims. Though Garlock had about $1 billion in insurance coverage, the company's aggregate annual cost to settle increased a total of six-fold during that time, according to court documents.

Some relief came in the early 2000s, as tort reform measures scaled back the number of claims made against defendant companies, especially in non-malignant claims. In 2002, more than 45,000 non-malignant claims were filed against Garlock. By 2006, about 5,000 non-malignant claims were filed.

As the continued pressure of asbestos litigation continued to mount for other industrial manufacturing defendants listed in the claims, several opted for bankruptcy. Between 2000 and 2001, eight of the "top-tier" defendants in the claims filed for bankruptcy, including GAF Materials Corp. and Turner & Newell, and P.L.C./Federal-Mogul Corp., according to court documents.

The bankruptcies followed the structure of the Johns Manville Corp. bankruptcy. Johns Manville, a manufacturer of insulation, roofing materials and engineered products, filed for bankruptcy in 1982 and created a trust to assume asbestos liabilities and claim payments. Once finished, the court ordered an injunction against current and future asbestos claims against the company, channeling those instead to the trust. The "safe harbor" structure was officially set into Section 524(g) by Congress in 1994.

Those bankruptcies led to others within the lists of defendants, and the immediate pressure of the asbestos claims fell on the remaining companies, including Garlock. Even with the scaling back of non-malignant cases, other cases became more costly. The average resolution value of a mesothelioma case went from its 1999 amount to about $23,100 in 2000, and $78,655 by 2006. The total annual payments for those cases increased from about $6 million in 1999 to more than $73 million by 2006.

Bankruptcy and resolution

Garlock filed for Chapter 11 bankruptcy in June 2010 looking for relief through several features of the law, including an automatic stay of current and new lawsuits, consolidation of claims and an authority of the bankruptcy and district court to estimate claims. During the bankruptcy process, Garlock and Coltec have been deconsolidated from EnPro's consolidated financials, and investments accounted for using cost method.

EnPro developed a plan of reorganization to be approved by the claimants and the court. Although claimants' estimates ranged between $970 million and $1.26 billion, a bankruptcy court judge in 2013 found Garlock's obligation to be $125 million, according to court documents. The ruling determines that Garlock products resulted in low exposure to a limited population, and that some plaintiff's law firms had controlled evidence to drive up settlements. Garlock entered negotiations with current claimants and representatives for future claimants, and came to an agreement in March 2016.

As part of the bankruptcy process, Coltec merged with and into a new EnPro indirect subsidiary, Old Co. L.L.C., which filed a pre-packaged Chapter 11 bankruptcy petition to be considered alongside Garlock's in Jan. 2017. Old Co. retained responsibility for all asbestos claims for Coltec. All of Coltec's significant operating assets and subsidiaries were distributed to a new direct, wholly owned EnPro subsidiary, EnPro Holdings Inc., according to a statement.

The amended reorganization plan protected Garlock and other subsidiaries from asbestos claims and would establish the $480 million trust to handle claims. EnPro also reached a settlement for Canadian asbestos claims in 2016, agreeing to pay an additional $20 million to Canadian Provincial Boards within four years of the effective date of the plan.

Approval of the plan was required by at least 75 percent of total claimants and two-thirds of the total dollar amount of claims. In December 2016, about 95.9 percent of claimants representing 95.8 percent of the total dollar amount approved the plan. A total of five objections were filed against the plan, by the purchaser of Quincy Compressor's business assets, an appointed bankruptcy administrator and three insurers. Four of those objections had been resolved at the time of the bankruptcy court approval, except for one of the insurer's objections relating to neutrality language in the plan. That objection is fairly narrow, and shouldn't threaten the entire plan, Magee said.

If approved by the district court, the plan is on track to be consummated by the third quarter of 2017, reconsolidating Garlock and other subsidiaries back into EnPro.