Hughes Becomes Firm’s Largest Creditor : Judge Makes It Official: Smith to Pay $204 Million

Although his ruling will have little immediate effect because of a related bankruptcy action, U.S. District Judge Harry L. Hupp on Wednesday formally ordered Smith International Inc. to pay the Hughes Tool Co. of Houston $204.6 million for its copying of a Hughes-patented rubber seal used in oil-drilling bits.

The judgment, which marks the end of the penalty phase of a bitter and long-running dispute between the two competitors, automatically makes Hughes the single largest creditor of Newport Beach-based Smith.

Meanwhile, Smith Chairman Jerry Neely and President Fred Barnes met in New York on Wednesday with representatives of the company’s major lending banks, according to company sources.

Bank Executives

Participants, who met at the offices of Smith investment banker Morgan Stanley, included executives from Chase Manhattan Bank, Security Pacific National Bank, Bank of America and several of Smith’s European bank lenders.

The meeting, which was called by the banks, was not a gathering of the official creditors’ committee.

Smith’s 20 largest lenders are in the process of being asked whether they wish representation on the official committee. An informal conference among the creditors will be scheduled within a matter of days, according to a representative of the U.S. trustee’s office in Bankruptcy Court in Los Angeles, which will administer the Smith proceedings.

The trustee’s office is waiting to receive the names of Smith’s 20 largest trade creditors so that they can be polled to determine interest in serving on the committee.

Hughes May Serve

In addition, Hughes Tool Co., which won the $204.6-million judgment against Smith, will also be asked if it wants to serve on the committee. However, the trustee’s representative said he was not sure how Hughes would be handled, since it is one of Smith’s largest competitors and potentially would have access to trade secrets by serving on the committee.

“It may ultimately have to be decided by the judge, if everyone can’t agree on Hughes,” he said.

Although the Smith bankruptcy bars an appeal of the ruling by either party without permission of the bankruptcy court, neither lawyers for Smith nor officials at Hughes have ruled out the possibility.

In its last public financial report, Smith posted a loss of $58.3 million for the nine months ended Sept. 31, compared to net earnings of $7.5 million a year earlier.