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USG REACHES AGREEMENT WITH 2 OF 3 CREDITOR GROUPS & LARGER INVESTORS ON TERMS OF DEBT RESTRUCTURING; SEC FILING AND SOLICITATION TO COMMENCE

USG REACHES AGREEMENT WITH 2 OF 3 CREDITOR GROUPS & LARGER INVESTORS ON

TERMS OF DEBT RESTRUCTURING; SEC FILING AND SOLICITATION TO COMMENCE
 CHICAGO, Sept. 22 /PRNewswire/ -- USG Corporation announced today that it has reached an agreement in principle with two of its three creditor groups on the terms of a restructuring plan. Committees and institutions representing the Corporation's bank debt and all public debt subject to the restructuring, (with the exception of the Corporation's most junior creditors, the 16 percent Junior Subordinated Debentures) have signed letters indicating that they support the terms of the plan.
 Significant Bondholder and Bank Support for Plan
 The plan incorporates the terms of the previously announced agreement in principle with the agents for USG's bank group and has been endorsed by both Trust Company of the West and Fidelity Investments, two of USG's largest public senior and bank debt holders. Furthermore, Goldman Sachs' Water Street Corporate Recovery Fund I has stated that it has no objection to the plan. When in place, the plan would reduce the face value of USG's debt from $2.7 billion to $1.6 billion and total interest expense from $333 million in 1991 to $124 million of cash interest in 1993.
 Suppliers and Operating Subsidiaries Will be Unaffected
 As previously disclosed, USG intends to implement the restructuring via a prepackaged holding-company-only Chapter 11 proceeding. Because the Chapter 11 proceeding will be limited to the parent holding company, there will be no impact on the trade creditors of USG's operating subsidiaries or the asbestos claimants of the United States Gypsum Company. USG's operating subsidiaries including United States Gypsum Company, L&W Supply, USG Interiors, CGC Inc. and USG International will not be parties to the bankruptcy and will continue to pay their suppliers and other creditors in full and on time. In addition, suppliers to USG Corporation not directly involved in the restructuring will be unaffected. As of Aug. 31, 1992, USG had $155 million of cash on hand to support its trade credit and supplier relationships. This amount excludes $87 million in restricted cash from the sale of DAP.
 Disclosure Statement To Be Filed Shortly
 USG currently intends to file a preliminary copy of a bankruptcy disclosure statement with the Securities and Exchange Commission in the near future, and will start soliciting bondholders and stockholders for their approval of the restructuring plan when the disclosure statement has been processed and declared effective by the SEC. Once the necessary approvals have been obtained, USG will file a plan of reorganization with the bankruptcy court -- most likely in early 1993, and hopes to emerge from the Chapter 11 process during the first half of 1993.
 Equity Allocation
 The agreement announced today provides that, when the restructuring is completed 82 percent of USG's outstanding common stock would be owned by the 13-1/4 percent senior subordinated bondholders, 15 percent would be owned by the 16 percent Junior Subordinated bondholders, and the current shareholders' ownership would be diluted to 3 percent.
 The 16 percent debenture holders and common stockholders would also receive 5-year warrants which would be equivalent to 3 percent and 1 percent, respectively, of the shares outstanding immediately after the restructuring. The warrants would carry an exercise price per share of $600 million divided by the total number of common shares outstanding immediately after the restructuring. If the warrants were exercised, the 13 1/4 percent Senior Subordinated bondholders' ownership of USG's outstanding common stock would decline to 78.8 percent, the 16 percent junior subordinated bondholders' ownership would rise to 17.3 percent, and the current shareholders' ownership would rise to 3.9 percent. This would represent an equity split ratio between the 13-1/4's and 16's of approximately 2.8 to 1 based on the 13-1/4 percent and 16 percent bondholders' respective claims of $771 million and $477 million as of June 30, 1992.
 The agreement also provides an ongoing role for nominees of both the 13-1/4 percent and 16 percent subordinated bondholders on USG's board of directors and addresses certain related corporate governance matters.
 13-1/4 Percent Bonds Accept Plan
 The committee representing the 13 1/4 percent senior subordinated debentures has unanimously endorsed both the proposal and the corporation's plan to implement the restructuring via a prepackaged holding-company-only bankruptcy proceeding. In addition, Goldman Sachs' Water Street Corporate Recovery Fund I, which owns over 50 percent of the 13-1/4 percent Senior Subordinated Debentures and over 50 percent of the 7-3/8 percent senior notes as well as other securities including the 16 percent junior subordinated debentures and bank debt, has indicated that it has no objection to the proposal.
 16 Percent Bondholder Committee Response
 The 16 percent Junior Subordinated bondholder committee has advised the corporation that they do not believe that the proposal adequately addresses the interests of the 16 percent debenture holders. They have also advised the corporation that the committee members will vote to reject any plan based on this proposal and that they will recommend that other 16 percent bondholders also reject the proposal. The 16 percent bondholder committee has advised the corporation that they represent one institutional and numerous retail holders who own more than one third of the outstanding 16 percent debentures.
 However, since the 16 percent junior subordinated bondholders are the most junior class of creditors in USG's capital structure, and USG has reached an agreement with committees and institutions representing the corporation's bank debt and all other public debt subject to the restructuring, the agreement in principle contemplates that if the required approval of the 16 percent debenture holders is not obtained during the prepackaged bankruptcy solicitation process, then the corporation would file and seek confirmation of a plan of reorganization under the "cramdown" provisions of the bankruptcy code which would provide the 13-1/4 percent debenture holders with 100 percent ownership of USG's equity, and no distributions to the 16 percent debenture holders or current stockholders.
 USG Pleased With Support of Major Creditor Groups
 Commenting on the agreement, USG Chairman and CEO Eugene B. Connolly said, "We have worked diligently over the past twenty-one months to restructure USG's debt. We're extremely pleased that we've reached an understanding with the 13-1/4 percent senior subordinated bondholder committee, the agents for the banks, and our larger institutional investors. We look forward to implementing this restructuring plan as quickly as the process will allow. We are very disappointed with the 16 percent bondholder committee's reaction to this proposal, especially in light of our previous discussions with the members of the committee. We think however, that when the 16 percent debenture holders see that the plan is in their own best interests, they will ultimately support the plan."
 Connolly continued, "We have been negotiating with these bondholder committees for over a year, and have made every effort to negotiate a consensual proposal which recognizes each party's interests within the capital structure. USG and its advisors believe that this proposal recognizes these interests, and gives 16 percent bondholders far more equity than they could expect to receive in a prolonged, non-consensual bankruptcy process. We sincerely hope that the 16 percent junior subordinated committee and the other 16 percent bondholders will realize this when they vote on the plan. If we are unsuccessful in obtaining the necessary approvals from the 16 percent bondholders to provide them with up to 17.3 percent of USG's equity, then we will seek confirmation of a plan which will give them nothing. We simply cannot continue to operate in financial limbo."
 Implementation of the Exchange Proposal
 Unlike an out-of-court restructuring where virtually all creditors must accept a restructuring plan, the bankruptcy court can bind all affected creditors to the prepackaged plan once it is approved by holders of at least two-thirds in amount and more than one-half in number of the bonds that vote in each class. The bankruptcy court is also empowered, under the cramdown provisions of the bankruptcy code, to confirm a plan even if all affected classes do not approve the plan. After the necessary approvals have been obtained, the holding company, USG Corporation, will file a petition under Chapter 11 of the Federal Bankruptcy Code, and ask the court to confirm the plan. The restructuring and the timing of the plan's implementation remain subject to certain conditions including clearance by the SEC of the corporation's disclosure statement, acceptance by the required levels of creditors, completion of definitive documentation and court approval of the solicitation and the final plan.
 Details of Bank and Senior Public Debt Agreement
 The agreement announced today incorporates the terms of the previously announced agreement in principle with the agents for USG's bank group. According to this agreement, the bank group would, among other things, extend the final maturity of the term loan until the year 2000, eliminate any mandatory amortization payments until Dec. 31, 1994, and reduce mandatory amortization payments after 1994, reinstate USG Interior's $175 million revolving credit facility through 1998, and re-open the LIBOR interest rate pricing option which, as a result of the current interest rate environment, would lower interest expense. The bank group would also agree to capitalize up to $75 million of currently unpaid interest and have the right to convert up to $327 million of the existing term loan and a pro-rata share of capitalized interest into new 10-1/4 percent senior notes maturing in 2002. Based on current projections, these measures would provide USG with the liquidity to fulfill its operating and financial obligations.
 Of the $100 million 7 3/8 percent senior notes due Dec. 15, 1991, currently outstanding, $75 million would be extended to Dec. 15, 1995, and would bear interest at 8 percent. The remaining $25 million would be extended to Dec. 15, 1998, and would bear interest at 9 percent. Other than two institutions who have agreed to extend their maturities, the corporation's other senior public debt would be unaffected by the restructuring.
 USG Corporation is a holding company whose subsidiaries are market leaders in their key product groups of gypsum wallboard, joint compound and related gypsum products, ceiling tile and grid and building products distribution.
 -0- 9/22/92
 /CONTACT: USG corporate communications, 312-606-4124, or investor relations, 312-606-5594/
 (USG) CO: USG Corporation ST: Illinois IN: CST SU: FNC


TS -- NY056 -- 2197 09/22/92 12:36 EDT
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Date:Sep 22, 1992
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