Maremont Corporation – Files Pre-packaged Chapter 11; Parent Meritor and Holders of Asbestos Claims Back Plan and Creation of 524(g) Trust

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January 23, 2019 – Maremont Corporation and 3 affiliated Debtors (“Maremont” or the “Company”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 19-10118 {Docket No. 1]. The Debtors,each a wholly-owned, non-operating subsidiary of Meritor, Inc. (“Meritor,” NYSE: MTOR) historically involved in the manufacturing of automobile exhaust parts, are represented by James F. Conlan of Sidley Austin LLP. Further board-authorized engagements include Cole Schotz P.C as Delaware attorneys. The Company’s petition notes between 10,000 and 25,000 creditors; estimated assets between $10 million and $50 million; and estimated liabilities between $100 million and $500 million. Pursuant to distribution procedures detailed in Exhibit D to the Plan (see table below), qualifying claimants will receive payments ranging from $12,100 to $111,500.

in addition to the Petition, the Company filed a declaration in support of the filing (the ” Declaration”) [Docket No. 3], a Joint Prepackaged Plan of Reorganization [Docket No. 10], a Disclosure Statement [Docket No. 11] and a tabulation of voting reesults as provided by the Debtors’ claims agent [Docket No. 12].

In a press release Meritor stated, “The Debtors will seek to implement their Joint Pre-Packaged Plan of Reorganization (the ‘Plan) through the Chapter 11 Cases. Prior to the filing, holders of asbestos claims – the only voting class pursuant to the Plan – that voted on the Plan voted unanimously to accept the Plan. Meritor and its other non-Debtor subsidiaries are not part of the Chapter 11 filing and will continue to operate as usual, but will receive certain releases and other protections under the terms of the Plan.” 

Jay Craig, Meritor’s CEO and President, added “Through this process, Maremont is seeking a constructive and equitable resolution for claimants by establishing a trust that will treat all individuals fairly and consistently while definitively addressing its historical asbestos-related liabilities. Meritor’s financial position is strong and we remain focused on serving our customers, driving operational excellence and achieving our business objectives.”

Asbestos Litigation and 524(g) Trust

Maremont, a non-operating subsidiary of Meritor, manufactured certain friction products containing asbestos from 1953 through 1977, when it sold its friction product business, and one of its subsidiaries manufactured certain exhaust products containing asbestos from 1954 to 1978, when it ceased using asbestos in such products. Arvin Industries, Inc., a predecessor of Meritor, acquired Maremont in 1986. Maremont and many other companies are defendants in suits brought by individuals claiming personal injuries as a result of exposure to asbestos-containing products. 

As previously announced, on December 4, 2018, Maremont and its subsidiaries initiated a process to equitably and permanently resolve all asbestos liabilities related to the historic manufacturing activities of Maremont and its subsidiaries by soliciting votes from asbestos claimants. The deadline to submit ballots was January 18, 2019.  One hundred percent (100%) of holders of current asbestos claims against Maremont that voted on the Plan voted in favor of the Plan. There were approximately 1,900 and 2,800 active asbestos-related lawsuits against Maremont and its subsidiary Maremont Exhaust Products, Inc. as of December 31, 2018 and December 31, 2017, respectively. Maremont believes that establishing a 524(g) trust will ensure an equitable and permanent resolution to all current and future asbestos claims related to Maremont asbestos products.

Among other things, the Plan is intended to permanently resolve all current and future asbestos claims related to Maremont’s historical asbestos-related activities through the creation of a trust pursuant to Section 524(g) of the U.S. Bankruptcy Code. If the Plan is confirmed by the bankruptcy court and approved by the district court and all other actions necessary to implement the Plan are completed, Maremont will fund a 524(g) trust to address its current and future asbestos claims and permanently enjoin any future lawsuits related to such claims against, among others, Meritor and its non-Debtor subsidiaries, and channel all such claims and demands to the 524(g) trust.

Key Terms of the Plan 
  • Funding for the 524(g) trust will consist of a $28 million contribution by Meritor, together with a contribution of Maremont’s remaining assets, including approximately $21 million in cash and intercompany loan receivables less certain amounts needed to pay for the administrative costs of the Chapter 11 Cases, as well as its remaining insurance assets; 
  • An injunction that permanently protects the reorganized Debtors, Meritor and its subsidiaries, and certain of their related representatives from current and future claims stemming from Maremont’s historical asbestos activities; 
  • All claims other than asbestos claims against Maremont and its subsidiary debtors will be paid in full or reinstated; and 
  • Meritor’s equity interests in Maremont will be cancelled. The 524(g) trust will own 100% of the equity interests in reorganized Maremont.
Summary of claims, classes voting rights and expected recoveries:

  • Class 1 (“Priority Non-Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%
  • Class 2 (“Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%
  • Class 3 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%
  • Class 4 (“Asbestos Personal Injury Entitled to Vote Claims”) is impaired and entitled to vote on the Plan. Expected recovery is 29.1%. The current initial payment percentage assumes initial funding of not less than $58 million. Should the initial funding be between $58 million and $65 million, the initial payment percentage will increase proportionately. To the extent the Asbestos Personal Injury Trust is funded with less than $58 million or more than $65 million the initial payment percentage may be adjusted
  • Class 5 (“Environmental Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100%
  • Class 6 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. Expected recovery is 0%/100%
  • Class 7 (“Maremont Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Expected recovery is 0%
  • Class 8 (“Inter-Debtor Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected recovery is 100% 
Asbestos Personal Injury Claim Disease Levels and Scheduled Values
The Asbestos Personal Injury Trust distribution procedures attached to the Plan as Exhibit D (the “TDP”) establishes five (5) asbestos-related diseases eligible for potential compensation from the Asbestos Personal Injury Trust (the “Disease Levels”): Mesothelioma 2 (Shade Tree Mechanic Claim), Mesothelioma (Occupationally Exposed Claim), Lung Cancer, Other Cancer, and Severe Asbestosis.
 
To qualify for payment from the Asbestos Personal Injury Trust, claimants must submit specific medical and exposure evidence as provided in the TDP. The Asbestos Personal Injury Claim values for each Disease Level are set forth below by level, disease category and scheduled value.
 
  • Level V Mesothelioma 2: $12,100
  • Level IV Mesothelioma: $111,500
  • Level III Lung Cancer $25,400 
  • Level II Other Cancer: $5,400
  • Level I Severe Asbestosis $25,400
Exhibits filed with Plan:
  • Exhibit A: Asbestos Claims Indemnification Agreement 
  • Exhibit B: Asbestos Personal Injury Claimant Release 
  • Exhibit C: Asbestos Personal Injury Trust Agreement 
  • Exhibit D: Asbestos Personal Injury Trust Distribution Procedures 
  • Exhibit E: Asbestos Records Cooperation Agreement 
  • Exhibit F: List of Debtor Product Lines 
  • Exhibit G: Environmental Assumption and Indemnification Agreement 
  • Exhibit H: List of Non-Debtor Affiliates: 
  • Exhibit I Names and Affiliations of Future Claimants’ Representative, Asbestos Personal Injury Trustee, and Members of the Asbestos Personal Injury Trust Advisory Committee 
Exhibits filed with Disclosure Statement:

  • Exhibit A: Plan of Reorganization 
  • Exhibit B: Financial Projections 
  • Exhibit C: Financial Statements 

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