pwc advisory services asbestos: a way forward from financial uncertainty 14 june 2005

Advisory Services

Asbestos: A way forward from financial uncertainty14 June 2005

PricewaterhouseCoopers LLP

Who we are

Neil Gayner – Director• Neil has been involved with the insurance industry for many years as a management consultant and more recently specialising in restructuring using Schemes of Arrangement• He has specialised in dealing with latent claims issues.

Alan Augustin – Senior Manager• Alan has been involved in the insurance industry for over 15 years and is

experienced in the management and closure of long-tail liabilities • He is currently involved in developing solutions for corporates with asbestos

liabilities


Overview

• Successful companies in many industries are facing threats from asbestos liabilities arising out of historic activities

• Value and propensity of claims arising has increased over recent years. Forecasts indicate that they are unlikely to peak for at least 10 years

• Perception and performance of business can be materially affected by such legacy claims

• There may be a solution that benefits all stakeholders


Corporate

Potential impact of asbestos exposures

Disclosure/ accounts

Customer contracts

Negativeperception

Restrictions on dividends

Reputation

Trapped value

Boarddistraction

Lenders’attitude

Unpredictablecash flow

Complete uncertainty

Share price


Generic options available

Now

Do nothing

Seek insurance in respect of the

liabilities Restructurethe business

Sell the company

Implement a scheme of

arrangement


Scheme of arrangement

Binds actual and contingent claimants if approved

Court sanction required

Of those claimants who vote, requires for each class:

• Recognised and tested process

Companies Act 1985 (section 425) procedure

• Requires notification to potential claimants

• 50% by number• 75% by value

• Fair process


Basic structure of the scheme of arrangement solution

Existing company

Currentoperations

Asbestosliabilities

Initialassets

Scheme of arrangement Newco

Ongoing obligation to fund any shortfall in Newco (subject to an annual limit)

Transfer of payment obligation

Creation of fund


Benefits of scheme of arrangement

For the company:

• Certainty

• Protection from an increase or acceleration in asbestos liabilities

• Controls impact of future adverse cash flows

• Positive PR

• ‘Frees’ company from legacy issues from both a trading and investment perspective

For potential claimants:

• Establishment of a fund and company protection from insolvency means claims will be paid as they arise


Key messages

• Successful companies in many industries are facing threats from asbestos liabilities arising out of historic activities

• Value and propensity of claims arising has increased over recent years. Forecasts indicate that they are unlikely to peak for at least 10 years

• Perception and performance of business can be materially affected by such legacy claims

• Ring fencing asbestos liabilities using a Scheme of Arrangement may provide benefits to all stakeholders


This proposal is protected under the copyright laws of the United Kingdom and other countries. It contains information that is proprietary and confidential to PricewaterhouseCoopers LLP, and shall not be disclosed outside the recipient's company or duplicated, used or disclosed in whole or in part by the recipient for any purpose other than to evaluate this proposal. Any other use or disclosure in whole or in part of this information without the express written permission of PricewaterhouseCoopers LLP is prohibited.

© 2005 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

pwc advisory services asbestos: a way forward from financial uncertainty 14 june 2005

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