August 4, 2022

Aearo Bankruptcy Plans

3M Unit Goes Bankrupt in Bid to Resolve Lawsuits Over Military Earplugs

• 3M pledges $1 billion for veterans claiming hearing damage
• Bankruptcy strategy to be challenged by victim lawyers

By

Steven Church and

Jeremy HillJuly 26, 2022 at 11:06 AM EDTUpdated onJuly 26, 2022 at 1:03 PM EDT

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3M Co. put its Aearo Technologies unit into bankruptcy in a bid to resolve more than 230,000 lawsuits brought mainly by US military veterans over allegedly faulty combat earplugs.

The conglomerate has already spent nearly $350 million defending the sprawling litigation, according to court papers. Putting the unit into bankruptcy is the fastest and most equitable way to resolve the claims, 3M said. 

The case is the latest in a string of so-called mass tort bankruptcies, in which profitable companies use insolvency proceedings to settle onerous legal liabilities. Lawsuits against a bankrupt company are paused as soon as a Chapter 11 petition is filed and the claims are moved in front of a bankruptcy judge. 

3M plans to funnel $1 billion to a trust that would pay people suing over the earplugs and has set aside $240 million to fund the bankruptcy itself. The strategy is similar to those proposed by other lawsuit-addled companies like Johnson & Johnson and Purdue Pharma LP. 3M itself is not in bankruptcy.

The Chapter 11 filing will “reorganize a business with healthy operations that has become saddled with unsustainable tort liabilities,” John R. Castellano, chief restructuring officer of Aearo, said in a sworn declaration. Outside of bankruptcy, the lawsuits “could go on for decades, continue to consume millions of dollars in defense costs annually, and continue to result in highly disparate outcomes for plaintiffs,” he said. 

The company is likely to face pressure to pay more than $1 billion, analysts said.

“The $1 billion that is being seeded by 3M to cover claims should be viewed as a first installment,” Nigel Coe, senior research analyst with Wolfe Research, said in a note. “We maintain that $10 billion is more realistic.”

J&J’s Victory Over Cancer Victims Clears Path for 3M, Others

Victims will fight the bankruptcy filing, attorneys for one of the leading law firms representing veterans said in a statement. 

“3M’s bankruptcy maneuver is further proof that they value their profits and stock price more than the well-being of veterans,” lawyer Bryan Aylstock said in the emailed statement. “Instead of negotiating in good faith, 3M decided to move its relentless attack on US soldiers from the civil courts to the bankruptcy system.”

Those suing 3M and Aearo — primarily military veterans — claim they suffered hearing injuries after using noise reduction earplugs designed for and sold to the US military. Aearo began selling the earplugs in “significant quantities” in the early 2000s and continued selling them until 2015, Castellano said. 

So far, only a handful of the 3M earplug cases have been tried, according to court documents. A jury in one case said the company should pay $77.5 million. The company has lost 13 of the 19 cases that went to trial, with juries awarding more than $300 million in damages, according to Aylstock, the victims lawyer.

Such bankruptcy cases can take years to complete, in part because setting up a victim’s trust typically takes a vote of 3/4ths of creditors. Getting that much support typically takes negotiations including top victim lawyers, insurance companies that have to help pay claims and the company.

Should 3m’s proposal win enough victim support and approval from a bankruptcy judge, all current and future claims would be paid by the company-funded trust. 

3M purchased Aearo in 2008. The company has more than 300 employees and generated $108 million in direct sales last year, according to court papers. It is based in Indiana. 

The bankruptcy is Aearo Technologies LLC, 22-02890, United States Bankruptcy Court for the Southern District of Indiana (Indianapolis).

— With assistance by Ryan Beene

https://www.bloomberg.com/news/articles/2022-07-26/3m-unit-goes-bankrupt-in-bid-to-corral-earplug-lawsuits

August 4, 2022

Aearo Bankruptcy Plans

3M Unit Goes Bankrupt in Bid to Resolve Lawsuits Over Military Earplugs

• 3M pledges $1 billion for veterans claiming hearing damage
• Bankruptcy strategy to be challenged by victim lawyers

By

Steven Church and

Jeremy HillJuly 26, 2022 at 11:06 AM EDTUpdated onJuly 26, 2022 at 1:03 PM EDT

Share this article

Follow the authors+ Get alerts for+ Get alerts for

3M Co. put its Aearo Technologies unit into bankruptcy in a bid to resolve more than 230,000 lawsuits brought mainly by US military veterans over allegedly faulty combat earplugs.

The conglomerate has already spent nearly $350 million defending the sprawling litigation, according to court papers. Putting the unit into bankruptcy is the fastest and most equitable way to resolve the claims, 3M said. 

The case is the latest in a string of so-called mass tort bankruptcies, in which profitable companies use insolvency proceedings to settle onerous legal liabilities. Lawsuits against a bankrupt company are paused as soon as a Chapter 11 petition is filed and the claims are moved in front of a bankruptcy judge. 

3M plans to funnel $1 billion to a trust that would pay people suing over the earplugs and has set aside $240 million to fund the bankruptcy itself. The strategy is similar to those proposed by other lawsuit-addled companies like Johnson & Johnson and Purdue Pharma LP. 3M itself is not in bankruptcy.

The Chapter 11 filing will “reorganize a business with healthy operations that has become saddled with unsustainable tort liabilities,” John R. Castellano, chief restructuring officer of Aearo, said in a sworn declaration. Outside of bankruptcy, the lawsuits “could go on for decades, continue to consume millions of dollars in defense costs annually, and continue to result in highly disparate outcomes for plaintiffs,” he said. 

The company is likely to face pressure to pay more than $1 billion, analysts said.

“The $1 billion that is being seeded by 3M to cover claims should be viewed as a first installment,” Nigel Coe, senior research analyst with Wolfe Research, said in a note. “We maintain that $10 billion is more realistic.”

J&J’s Victory Over Cancer Victims Clears Path for 3M, Others

Victims will fight the bankruptcy filing, attorneys for one of the leading law firms representing veterans said in a statement. 

“3M’s bankruptcy maneuver is further proof that they value their profits and stock price more than the well-being of veterans,” lawyer Bryan Aylstock said in the emailed statement. “Instead of negotiating in good faith, 3M decided to move its relentless attack on US soldiers from the civil courts to the bankruptcy system.”

Those suing 3M and Aearo — primarily military veterans — claim they suffered hearing injuries after using noise reduction earplugs designed for and sold to the US military. Aearo began selling the earplugs in “significant quantities” in the early 2000s and continued selling them until 2015, Castellano said. 

So far, only a handful of the 3M earplug cases have been tried, according to court documents. A jury in one case said the company should pay $77.5 million. The company has lost 13 of the 19 cases that went to trial, with juries awarding more than $300 million in damages, according to Aylstock, the victims lawyer.

Such bankruptcy cases can take years to complete, in part because setting up a victim’s trust typically takes a vote of 3/4ths of creditors. Getting that much support typically takes negotiations including top victim lawyers, insurance companies that have to help pay claims and the company.

Should 3m’s proposal win enough victim support and approval from a bankruptcy judge, all current and future claims would be paid by the company-funded trust. 

3M purchased Aearo in 2008. The company has more than 300 employees and generated $108 million in direct sales last year, according to court papers. It is based in Indiana. 

The bankruptcy is Aearo Technologies LLC, 22-02890, United States Bankruptcy Court for the Southern District of Indiana (Indianapolis).

— With assistance by Ryan Beene

https://www.bloomberg.com/news/articles/2022-07-26/3m-unit-goes-bankrupt-in-bid-to-corral-earplug-lawsuits

August 2, 2022

Tenex Statement on SES Sale

Tenex Capital Management Exits SES Foam

August 2, 2022

Tenex Statement on SES Sale

Tenex Capital Management Exits SES Foam

August 2, 2022

Contract Truck Rates Expected to Fall

Contract truckload rates will likely soften in the coming months

Spot rates indicate a strong dip for contracts is imminent

Zach Strickland, FW Market Expert & Market Analyst Follow on Twitter Saturday, July 30, 2022 3 minutes read Listen to this article 0:00 / 4:56 BeyondWords

Van rates on the truckload contract market will likely soften in the coming months. But, the decline won’t be as marked as what the industry saw on the spot market side.

The spread between spot and contract rates has averaged around record low levels (~-74 cents a mile) since early May. That will put downward pressure on contract rates for bids negotiated in the second half of the year. There is little precedent for such a dramatic difference, but there’s also little evidence historically that contract rates will fall as fast as they increase. 

The contract truckload market behaves very differently from the spot market. Volatility is the main difference. That’s driven primarily by the way pricing is negotiated. 

The RATES12 index used in this week’s chart is the difference between spot rates less a level of estimated cost of fuel and contract rates. This is done for a more apples-to-apples comparison of the two rates, as contract rates include a portion of fuel cost and pass a lot of it along in the form of a fuel surcharge. This mechanism is largely absent from spot rates.

Contract truckload rates have barely budged since March, but red flags are already appearing

The contract or published rate market is simply an agreement between shipper and carrier that is in place for an extended period of time. The commitment is somewhat tenuous as neither volume nor service is guaranteed in most instances. 

The only binding portion is, if the shipper tenders a load(s) to the carrier and the carrier is willing and able to transport the customer’s freight, it will do it for a predetermined price until the expiration of the agreement. Spot rates are negotiated on the spot and are normally only applicable for a few days with minimal volume.

Contract rate agreements typically have a life span of around 12 months but can be longer or shorter. Many shippers transitioned to a shorter procurement cycle during the pandemic thanks to their inability to secure capacity reliably, essentially bidding against one another and driving up rates faster than ever. Contract rates increased ~49% from June 2020 to March 2022.

Since March, there has been minimal movement in contract rates, but they are showing early signs of deterioration, falling about 2% since early June. Spot rates, assuming a base level of fuel cost around $1.20 per gallon, have dropped 27% over the same period. This has created a 74-cent-per-mile difference between the spot (NTIL12) and contract rate (VCRPM1) indices. 

In 2019 the spread between spot and contract averaged -24 cents per mile. Contract rates barely moved before falling about 2%-4% in January 2020, which shows that contract rates are less volatile.

The spread today is three times larger than it was in 2019. Shippers may have a stronger appetite for cost reduction after two years of rapid inflation. 

A rate decrease will occur if demand-side conditions do not improve

Movements for contract truckload rates will ultimately be decided by the carriers and their need for equipment utilization. And so far, most publicly traded trucking companies have only mentioned minor deterioration at most while reporting strong Q2 results. 

Accepted contract load volumes support this for now, showing only a marginal decline in July versus June. Compared to last July, volumes are down 3%-5%.

As for the supply side of the equation, most of the capacity growth over the past two years has been on the small fleet/owner-operator side, which heavily relies on spot market freight. The larger fleet heavy contract market has better structure to maintain elevated rate levels.

That said, the rate differential is too large to sustain for long. Some level of rate decrease will occur if demand-side conditions remain at or below current levels. Judging from history, it would appear a conservatively estimated 3%-5% decrease is all but imminent in the coming months.

About the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.

SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.

The FreightWaves data science and product teams are releasing new datasets each week and enhancing the client experience.