NEW YORK — In an attempt to seize the initiative in Texaco's record-setting bankruptcy case, Pennzoil on Monday said it would accept a $4.1-billion settlement of its more than $10-billion court judgment against its huge competitor--but only if Texaco agrees to the settlement by the end of August and pays the money by Jan. 31, 1988.
Pennzoil said the proposal would allow Texaco to pay its other unsecured creditors, including bondholders and suppliers, 100 cents on the dollar for their claims and would allow Texaco to emerge swiftly from bankruptcy. Texaco filed April 12 for protection from creditors, chiefly Pennzoil with its multibillion-dollar claim, under Chapter 11 of the U.S. Bankruptcy Code.
Pennzoil's plan is likely to provoke vigorous debate at a hearing scheduled for Thursday by U.S. Bankruptcy Judge Howard Schwartzberg, who is presiding over the bankruptcy case.
For one thing, Pennzoil asked that Texaco's exclusive right to propose its own settlement plan--normally afforded to debtors for at least six months after their bankruptcy filing, including two months to win approval from creditors--be terminated after August 10. Texaco has already requested that the exclusivity period be extended to March 31, 1988.
Other creditors of Texaco's said Monday that they would oppose both companies' motions on the exclusivity terms: Texaco's because it asks too much, Pennzoil's because a hasty termination would throw the bankruptcy case open to potentially dozens of competing reorganization proposals for the company.
"We think there are good reasons for a limited extension," said Jeffrey J. Hodgman, a senior vice president of Metropolitan Life Insurance Co. and acting chairman of the court-appointed committee of general unsecured creditors. He said his panel would agree to an extension allowing Texaco until Sept. 30 to propose a reorganization plan.
Texaco is planning to propose a formula that would pay all creditors except Pennzoil 100 cents on the dollar, sources said Monday. Pennzoil's claim would be set aside until the completion of all litigation over the matter.
Texaco's chief bankruptcy attorney on Monday derided the Pennzoil offer. "It sounds to me like they're almost panicking," said Harvey Miller, the attorney. He ridiculed Pennzoil assertions that the $4.1-billion settlement would leave Texaco's business and its fiscal condition almost unimpaired.
"The (other) creditors have a lot of concern about the long-range impact that a $4.1-billion payment would have on Texaco," he said.
Pennzoil acknowledged in court papers that Texaco might be forced to raise part of the settlement sum by issuing new bonds and stock, which could depress the prices of its existing bonds and shares from their already low levels.
Shareholder Group Opposed
"We're unalterably opposed to Pennzoil's offer," said David Berger, a Philadelphia attorney for one member of the court-appointed committee of Texaco shareholders. "We believe it would be taken out of the hides of the shareholders."
Still, Pennzoil executives painted the offer as one that shareholders should find preferable to Texaco's policy of fighting Pennzoil's claim through state and federal courts.
Baine P. Kerr, a key Pennzoil director, said Monday at a Houston press conference that Texaco management "shouldn't force the shareholders to take a long-shot gamble as to how this case is going to come out when there are other alternatives."
In composite trading Monday on the New York Stock Exchange, Texaco shares fell 12.5 cents to $45. The stock was the 10th most heavily traded. Pennzoil closed at $79, down 87.5 cents.
Chose Chapter 11
Pennzoil's latest offer is roughly identical to what it proposed during its negotiations with Texaco this spring over the judgment, which was awarded in 1985 to Pennzoil by a Texas state court jury that found Texaco had interfered with Pennzoil's planned acquisition of Getty Oil Co.
At that point, the two sides were so far apart that Texaco chose to enter Chapter 11 rather than risk that prolonged talks would give Pennzoil a chance to seize its assets to satisfy the judgment. Texaco was attempting to settle the dispute with a payment of no more than $2 billion.
Now, however, Pennzoil's offer will have to be weighed not only by Texaco's management but by Judge Schwartzberg and by committees of Texaco creditors. Under the offer, Texaco's unsecured creditors would also receive as much as 9% interest annualized on their claims, dating to April 12. On Pennzoil's $4.1-billion settlement offer, the interest would come to about $307 million by Jan. 31. Shareholders would win a resumption of dividend payments.
Pennzoil said its settlement offer would remain in force only if Texaco agreed to it sometime in August and paid it by the end of January, 1988.
Times researcher Rhona Schwartz, in Houston, contributed to this story.
All of Texaco's unsecured creditors except Pennzoil would be paid 100% of their claims, plus accrued interest from April 12, the date of Texaco's bankruptcy filing.
Pennzoil would accept $4.1 billion, plus interest from April 12, in settlement of its $10.3-billion court judgment against Texaco.
Texaco would resume dividend payments to its shareholders (about $750 million a year).