Dow Corning

Company Description

Dow Corning Corporation (“Dow Corning” or the “Company”), a 50/50 joint venture between The Dow Chemical Company and Corning, Inc., develops products that are incorporated by its customers into end products for use in industries ranging from aerospace to construction to consumer products to textiles.

Situation Overview

In 1992, following a voluntary halt of sales and production of silicon breast implants as requested by the FDA, Dow Corning experienced a substantial increase in the number of lawsuits filed against it related to the implants. Industry-wide efforts were made to resolve these lawsuits. In May 1995, subject to over 19,000 separate individual lawsuits and several state and federal class actions, the Company filed for Chapter 11 protection in order to consolidate and adjudicate the various lawsuits.

Transaction Summary

Blackstone was retained shortly after Dow Corning’s bankruptcy filing as the Company’s financial advisor. Early in the case, Blackstone, working with Dow Corning and its legal counsel, was able to convince the Bankruptcy Court and the Company’s creditors that, due to its operational strength, Dow Corning should be able to operate without significant Court intervention during the proceeding.

In order to formulate a proposal and negotiate with the Tort Claimants, Blackstone developed an interactive system of models that translated assumptions regarding disease severity, claims resolution speeds and the Company’s insurance coverage into annual net cash requirements from the Company which were incorporated into a typical financial statement model to analyze the resulting business impact. This system of models allowed the Company and its shareholders, to isolate the financial impact of slight changes in the claims resolution proposal or disease experience of the claimant population. In addition, Blackstone negotiated with the Commercial Creditors (banks and bondholders) to accept a package of cash and new debt so that the shareholders could maintain full ownership of the Company. After lengthy negotiations, the Company and the Tort Claimants also reached an agreement that was overwhelmingly approved by the Claimants.

The Bankruptcy Court confirmed Dow Corning’s case in November 1999. Appeals, mostly related to releases granted to the Company’s two shareholders, were pursued through the court system. In addition, issues with respect to the accrual rate to which commercial creditors are entitled during the pendency of the case remained. On June 1, 2004, Dow Corning emerged from Chapter 11 after the shareholders’ rights to releases were affirmed and the U.S. District Court approved the payment of undisputed commercial claims.