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In re Owens Corning

United States Court of Appeals for the Third Circuit
419 F.3d 195 (3d Cir. 2005)


In 1997, Credit Suisse First Boston (CSFB) (plaintiff), in its capacity as the agent for a syndicate of banks (Banks), loaned Owens Corning (OC) (defendant) $2 billion. Because of OC’s low credit rating and its exposure to asbestos litigation liability, CSFB required guarantees of payment from a number of OC subsidiaries. OC was structured with numerous subsidiaries, all with distinct purposes and retaining their legal separation from OC through corporate governance and operations. That said, the accounting of interest and royalty payments in intercompany transactions among OC and the subsidiaries was not perfect. The financing agreement between CSFB, OC, and the subsidiary guarantors included a number of provisions intended to ensure that the subsidiary guarantors remained separate from OC and could be released from their obligations only under limited circumstances. In 2000, OC and 17 of its subsidiaries (Debtors) filed for reorganization under Chapter 11. The Debtors eventually proposed a reorganization plan based on a deemed consolidation. As in substantive consolidation, the Debtors would pool all of their assets and liabilities into the parent, OC, such that claims against the subsidiary Debtors would become claims against OC. As a “deemed” consolidation, however, the Debtors proposed that they be deemed to be consolidated for purposes of valuing and satisfying claims, making distributions, and voting, but that the Debtors in actuality would retain their separateness. Under the proposed plan, the subsidiary guarantees provided to CSFB would be eliminated. The Banks objected to consolidation. The district court ruled in the Debtors’ favor, finding consolidation to be warranted on the grounds that the Debtors had the same substantial identity and consolidation would simplify and expedite the reorganization process. CSFB appealed on behalf of the Banks.

Rule of Law


Holding and Reasoning (Ambro, J.)

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