EnPro unit Garlock Sealing in bankruptcy to resolve asbestos lawsuits

By Caroline Salls

Pittsburgh, June 7 - EnPro Industries, Inc. wholly owned subsidiary Garlock Sealing Technologies LLC filed for Chapter 11 bankruptcy Saturday in the U.S. Bankruptcy Court for the Western District of North Carolina to permanently resolve its asbestos litigation, according to a company news release.

The filing includes Garlock Sealing Technologies LLC's operations in Palmyra, N.Y., and Houston. It does not include EnPro Industries or any other EnPro operating subsidiary.

According to the release, Garlock filed for bankruptcy to establish a trust that would resolve all current and future asbestos claims against it.

"Our goal is an efficient and permanent resolution of these claims," EnPro president and chief executive officer Steve Macadam said in the release.

"Garlock is a fundamentally sound business with excellent products and prospects.

"We believe a trust established through the bankruptcy court would provide Garlock an opportunity lacking in the tort system to completely resolve its asbestos claims while preserving the inherent value of the company and protecting its future.

"We believe a fairly valued trust could be established and funded by Garlock for a cost less than the cost of remaining in the tort system."

Garlock said it plans to negotiate with representatives of asbestos claimants to establish the 524(g) trust. Absent a negotiated resolution, Garlock will ask the court to determine the amount necessary to fund the trust.

"We believe Garlock has the resources to fund this trust in full without limiting its ability to grow and thrive," Macadam said in the release.

"Garlock is a healthy company with sufficient working capital to operate in the normal course throughout this process, and we are confident it will be able to meet the future needs and obligations associated with operating its business."

All pending litigation against Garlock will be stayed during the process.

DIP financing

In connection with the bankruptcy filing, Garlock has arranged for $10 million in debtor-in-possession financing from Bank of America, NA, which would provide additional liquidity during this process.

The facility will include an $8 million letter-of-credit subfacility.

Interest will be either Libor plus 350 basis points or Base rate plus 250 bps.

The DIP loan will mature on Dec. 7, 2011, subject to up to four one-year renewals.

"EnPro is completely committed to Garlock. It is a core investment, and we will continue to support Garlock as it seeks opportunities for growth," Macadam said in the release.

Asbestos issues

With more than $1 billion of annual settlement payments lost to bankruptcy filings made by other friable asbestos producers, EnPro said many plaintiffs began identifying Garlock's non-friable sealing products as a primary cause of their asbestos diseases while generally denying exposure to the friable products of companies in bankruptcy.

As a result, damages caused by "top-tier defendants" that produced friable asbestos products were shifted to Garlock. This significantly increased Garlock's cost of defending and resolving claims.

According to the release, the top-tier defendants funded 524(g) trusts that have more than $20 billion in value today to compensate individuals with asbestos diseases caused by the friable products of those defendants.

Garlock previously believed that as billions of dollars of trust assets became available to claimants, it would be able to obtain significant reductions in the costs to defend and resolve claims.

However, EnPro said these wealthy trusts have adopted distribution rules and procedures designed to allow claimants to collect payments from the trusts in secret.

When making claims against Garlock, EnPro said claimants are able to conceal their claims against the trusts and the evidence that friable products of the former defendants contributed to their diseases.

Debt details

According to court documents, Garlock has $500 million to $1 billion in assets and $100 million to $500 million in debt.

The company did not list any unsecured creditors with claims of $1 million or more.

Charlotte, N.C.-based EnPro makes sealing products, bearings, compressors and engines. Garlock's Chapter 11 case number is 10-31607.

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