In re Owens Corning
United States Court of Appeals for the Third Circuit
419 F.3d 195 (2005)
Credit Suisse First Boston (CSFB), acting for a syndicate of banks, loaned Owens Corning (OC) $2 billion, requiring guarantees from numerous OC subsidiaries given OC's exposure to asbestos liability and low credit rating; the financing agreement specifically included provisions meant to preserve the subsidiaries' legal separateness. OC and 17 subsidiaries later filed for chapter 11 and proposed a plan of "deemed" consolidation, treating the debtors as consolidated only for valuing claims, voting, and distributions while keeping their formal corporate separateness — a structure that would eliminate the subsidiaries' guarantees to CSFB's banks. The district court approved consolidation as warranted, given the debtors' substantial common identity and administrative simplification benefits, and CSFB appealed on the banks' behalf.
Whether substantive consolidation, or deemed consolidation, of affiliated bankruptcy entities is warranted where the prepetition separateness of the entities was well established and consolidation would seriously harm an objecting creditor's interests, even though there would be some administrative benefit to consolidation.