Under the terms of the agreement in principle, a trust will be established under Section 524(g) of the United States Bankruptcy Code for the benefit of current and future asbestos personal injury claimants, funded as follows:
· Upon the plan becoming effective, the trust will be funded with $450 million in cash;
· On or before the second anniversary of the effective date of the plan, an additional $102.5 million in cash, RPM stock or a combination thereof (at the discretion of RPM in this and all subsequent cases) will be deposited into the trust;
· On or before the third anniversary of the effective date of the plan, an additional $120 million in cash, RPM stock or a combination thereof will be deposited into the trust; and
· On or before the fourth anniversary of the effective date of the plan, a final payment of $125 million in cash, RPM stock or a combination thereof will be deposited into the trust.
These contributions to the trust total $797.5 million and are expected to be tax deductible. RPM estimates the after-tax net present value of the contributions to be approximately $485 million. The company anticipates that the cash necessary to initially fund the trust will be provided from amounts available under its revolving credit facilities and available cash resources. However, depending upon market conditions, RPM may determine to finance all or a portion of the contributions through the debt capital markets.
Pursuant to the agreement, Bondex’s parent company, Specialty Products Holding Corp. (“SPHC”), will remain a wholly owned subsidiary of RPM and its results of operations will be reconsolidated with those of RPM for financial reporting purposes effective upon consummation of the plan. SPHC had revenues of approximately $385 million during the 12 months ended May 31, 2014, compared with revenues of approximately $300 million for the fiscal year ended May 31, 2010, when the bankruptcy commenced. Virtually all of SPHC’s growth over that period has been organic. The company anticipates that reconsolidating SPHC’s results will be accretive to RPM’s earning per share in the first year, in part because the accounting rules that required RPM to record SPHC’s non-controlling interests in certain RPM subsidiaries as a non-cash reduction to net income will no longer apply upon consummation of the plan.
“We have been able to reach a settlement on acceptable terms that will resolve the Bondex-related asbestos liability, while enabling us to reconsolidate the financial results of SPHC’s growing and profitable businesses,” stated Frank Sullivan, chairman and chief executive officer of RPM. “Consummation of a plan of reorganization incorporating these terms will allow RPM to move forward and put this chapter in our history behind us.”
RPM expects the Bankruptcy Court will schedule future proceedings regarding this matter. The company expects to provide additional details on the financial impact of the agreement upon consummation of the plan, which is currently expected by the end of fiscal 2015.