DOW CORNING’S BANKRUPTCY FILING : How and Why Did It Happen? What Now?
The Dow Corning Corp. bankruptcy filing will have an immediate impact on everyone from the 410,000 participants in the massive breast implant settlement to thousands of bondholders and investors in an array of medical and chemical stocks.
Just what did Dow Corning do? Why? And how will the bankruptcy affect you? Here are some of the key questions and answers.
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Q: What is Dow Corning’s role in the breast implant controversy?
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A: The firm, a joint venture of Dow Chemical Co. and Corning Inc., was a major producer of silicone breast implants until halting their manufacture early in 1992.
Today the firm provides silicone for about 5,000 other products ranging from car wax and cosmetics to note pads. In the first quarter of 1995, Dow Corning posted record sales and earnings of $611 million and $49.5 million, respectively.
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Q: Why did Dow Corning seek bankruptcy protection?
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A: The company said it filed under Chapter 11 of the U.S. bankruptcy code because it could not afford both to contribute $2 billion to a breast implant litigation settlement fund and to defend itself against product liability claims outside the settlement.
Dow Corning is a defendant in about 19,000 such cases nationwide, including 200 scheduled for trial this year. Some experts have estimated that thousands more suits could be filed before the breast implant liability issue is finally settled.
“We are financially strong,” says T. Michael Jackson, a company spokesman. “By filing now before all our resources are depleted by lawsuits, we will continue to earn profit and be able to pay off our creditors.”
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Q: What happens to the settlement to which Dow Corning and other silicone breast implant manufacturers agreed?
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A: Nothing. The settlement, which originally proposed to provide $4.23 billion to current and future claimants, is being renegotiated because more women filed claims than were originally anticipated.
The four companies paying into the settlement fund--Dow Corning, Bristol-Myers Squibb Co., 3M Co. and Baxter International Inc.--will continue to negotiate with plaintiffs’ attorneys on a new settlement agreement, Jackson said. However, Dow Corning will need to get Bankruptcy Court approval before it can pay its share.
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Q: What about the other suits filed against Dow Corning?
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A: They are in limbo. The moment a company files Chapter 11, all legal claims against it are “stayed”--legalese for temporarily halted.
Bankruptcy Court can allow such suits to continue independently, consolidate them into a single suit under its purview or oversee a settlement, said Isaac Pachulski, senior partner at the Los Angeles law firm of Stutman, Treister & Glatt. However, it is far too early to know what the court will do in Dow Corning’s case.
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Q: What about the other companies involved in the breast implant settlement? Will they have to pay more because Dow Corning is in bankruptcy?
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A: That is unclear. The other firms said they do not expect the bankruptcy filing to affect the amounts they will pay under the agreement. However, some plaintiffs’ attorneys said they will consider removing Dow Corning from their pending lawsuits--filing only against the three companies not in Bankruptcy Court--in order to keep the litigation going without delay.
However, the stock market’s reaction indicates that investors do not believe there is a significant threat to the other three companies--or to Dow Corning’s parent companies, Corning and Dow Chemical. None of the firms’ stock prices moved significantly Monday. 3M and Dow actually rose slightly.
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Q: What about employees and vendors? Will they be paid? Will retirees?
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A: Yes. Dow Corning said Monday that it will continue to supply products to its customers and compensate its employees and suppliers as usual. Nothing in the bankruptcy law will prevent that, experts say.
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Q: I have Dow Corning bonds. Will I get interest and principal payments on time?
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A: No. Interest and principal payments to bondholders will be at least temporarily suspended and could be put in limbo throughout the bankruptcy period, which could last years.
The upshot: The trading prices of Dow Corning bonds, due in 1996, fell Monday to about $69 per $100 of principal value, from about $75 last week, says Jay H. Lustig, president of Equibond in Santa Monica.
However, the company’s long-term debt--a 9.375% issue due in 2008--actually rose on the news, he said. The long-term bonds, which had been trading as low as $58 earlier this year, are now trading in the low to mid-70s, Lustig said.
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Q: What about people who have immediate medical problems that they believe are caused by silicone implants? Is there any way to get their medical bills paid today, before the bankruptcy or settlement agreement is completed?
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A: Probably not, Pachulski said. Bankruptcy rules generally prohibit one claimant from getting preferential treatment for any reason, no matter how sad or severe. The reason is logical. If the company has limited resources, it would be unfair to pay today’s claims at the cost of not being able to pay equally important claims later.
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Q: Is there anything I ought to do if I have a suit or other financial claim against Dow Corning?
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A: Yes. Make sure you and your lawyer are keeping track of the bankruptcy proceedings and file a proof of claim with the Bankruptcy Court before the case is settled, Pachulski said. Failing to file this document could cause your claim to be dismissed, he said.
