Smith Payment Set at $204.6 Million; Lenders Will Meet
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Smith International Monday learned the exact amount of the giant patent-infringement award that caused it to seek protection in bankruptcy: $204.6 million.
U.S. District Judge Harry L.Hupp told Smith to pay the amount to settle a long-running legal battle with its arch-rival, Hughes Tool Co. of Houston, but the order was largely ceremonial because the bankruptcy action stays collection of the judgment.
Smith filed for protection from its creditors in a Chapter 11 bankruptcy proceeding Friday, largely in an attempt to avoid having to pay Hughes immediately.
In a hearing held in Los Angeles Monday, Hupp told the Newport Beach company to pay $70.1 million in interest on $134.5 million in royalties owed Hughes as a result of its infringement on a Hughes-patented “O-ring” seal used in oil-drilling bits. The amount was just $2.4 million less than Smith originally estimated when Hupp first announced his decision on Feb. 14.
The interest amount, tied to a AAA bond rate and retroactive to 1972, was set by Hupp after meeting with attorneys for both sides and reviewing their estimates.
Meanwhile, several of Smith’s bank lenders are scheduled to meet Wednesday in New York to map out their strategy, according to creditors. Although a creditor committee is not expected to be named formally at the meeting, it will mark the first time that the holders of some of Smith’s $260 million in debt will gather to discuss the implications of the company’s bankruptcy filing last Friday.
Although Hughes Tool Co. is technically Smith’s largest creditor, company attorneys said it was not invited to the New York meeting. Furthermore, several bank creditors questioned whether a Hughes representative would be included on the committee that helps oversee Smith’s operations during bankruptcy.
“The normal sequence of events would be to include a creditor of that size,” said a representative of one of Smith’s bank lenders. “But this is unusual because Hughes is a direct competitor.” He predicted that the court may ultimately have to decide whether Hughes will be included.
David Toy, one of Hughes’ attorneys, said the company still has not decided whether it wants to sit on the committee.
The creditors’ meeting is being held in New York to accommodate the many foreign lenders who will be attending, according to one bank representative.
A bankruptcy attorney in San Francisco said that creditor committees are usually named within two weeks of a bankruptcy filing and generally include representatives of the seven largest claim holders.
Among the creditors listed by Smith in documents filed with the bankruptcy court is First Fidelity Bank N.A. of Newark, which is the trustee for holders of $77 million in Smith debentures.
Linda Patterson, a vice president, said Monday that her bank became involved with Smith two weeks ago when it assumed the trusteeship from Security Pacific National Bank, one of Smith’s major lenders.
“This is a very common situation among banks that have a lending relationship and a trusteeship to resign the trusteeship when there is trouble,” Patterson said.
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