Owens Corning – Great Play on Asbestos Bill or Bust?

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Owens Corning, a once solid company that was forced into bankrupcy due to asbestos litigation, has recently seen its stock (OTC:OWENQ) trade as high as $5.50/share to as low as $1/share on speculation that Congress will pass the asbestos bill. So, is this really a good asbestos play? Or are investors missing one key point…

Although it is likely that the asbestos bill will be passed (supporters of the bill were only short ONE vote), it is extremely unlikely that current Owens Corning shareholders will see any benefit. The time to consider investing in this otherwise respectable company will be post-bankruptcy, once the newly issued shares are trading.

The following text is quoted from Owens Corning’s Restructuring website at www.ocplan.com:

What will happen to Owens Corning’s stock? As our Plan of Reorganization currently states, existing shares of OC stock will be cancelled once Owens Corning emerges from Chapter 11 (meaning it will have no value and will no longer trade) and new stock will be issued and distributed to creditors. As currently drafted, Owens Corning’s Plan of Reorganization does not provide any recovery for existing shareholders. If you own shares of Owens Corning stock, you should consult with a financial or tax advisor to assess your alternative courses of action.

Can you explain the variations in the stock price? The current trading in the company’s stock is not related, in our view, to the underlying financial performance of the company. Rather it appears that there is substantial speculative activity as to the total enterprise value, level of future asbestos claims and efforts in Washington, DC to pass legislation to deal with asbestos litigation. In addition, speculators opening and closing short positions have also exacerbated the short-term price volatility. Investing in any company that has filed a Chapter 11 Bankruptcy petition is risky, and anyone considering such an investment should obtain sophisticated financial advice.”


 by on Apr 27, 2006, 12:00am
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