Settlement Plan in Works : Texaco Creditors Hope to Prime the Pump

Hoping to prod warring Texaco and Pennzoil back to the bargaining table and expedite Texaco’s emergence from bankruptcy proceedings, a committee of Texaco creditors said Thursday that it will propose a settlement price tag of less than $4.1 billion within the next 10 days.

Speaking for Texaco’s non-oil creditors during a 5 1/2-hour court hearing called to decide how much longer Texaco should have to prepare a reorganization plan, committee chairman Jeffrey J. Hodgman called the $4.1-billion settlement proposed earlier this week by Pennzoil “excessive.” But he declined to cite a figure he considers more realistic, saying only that Pennzoil has acknowledged that “there is some flexibility” in its latest proposal and is available for discussions with the committee.

Texaco filed for bankruptcy reorganization April 12 as a haven from its legal woes with Pennzoil, which a Texas jury awarded $10.3 billion as damages after Pennzoil lost Getty Oil to Texaco in 1984. Pennzoil is represented on a second advisory committee, made up of oil industry creditors.

The Texaco creditors committees, like the judge overseeing the bankruptcy proceedings, are advisers only and cannot force Texaco and Pennzoil to settle outside court. But Hodgman said he is intent on dissuading the two firms from pursuing their fight over Getty Oil “to the bitter end” because that “would be damaging to creditors.”

Both Texaco and Pennzoil have indicated that they favor repaying all other Texaco creditors 100 cents on the dollar plus interest, even if Texaco ultimately is forced to pay Pennzoil the $10.3 billion it was awarded by a Texas jury. But Hodgman argues that some creditors would still lose money under such a plan because when Texaco takes on more debt to pay the damage award, the value of its bonds would decline and policyholders of companies holding the bonds would be hurt.

Hodgman is a senior vice president at Metropolitan Life, one of Texaco’s largest creditors.

Judge Howard Schwartzberg, who is presiding over the bankruptcy case, said he hopes to rule on an extension today.