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Lack Of Information #1 - American Biltrite's Asbestos Litigation

|Includes: American Biltrite Inc. (ABLT)

It rarely happens that I start to research a stock and find that there is just not enough information out there (or that I was not able to find any) to properly cover the stock.

American Biltrite (OTCPK:ABLT) is such an exception.

I first mentioned the company in my OTC bi-weekly where I said that the company is facing significant asbestos liability. Part of this is though covered by insurance which then makes the stock a potential net-net. The fundamentals are nothing out of the ordinary, but do not deserve such valuation. They operate three niche business that are unlikely to provide much value, but they create some cash flow.

This could then create an interesting opportunity because of the meaningful upside. The stock recently tanked (probably due to operational results) and currently sits at $250 per share but was trading at around $400 for a long period of time. If the litigation should be resolved the stock might be worth even more than that.

I decided to write this instablog in case anyone is interested in this opportunity or already did research the stock.

The issue that I found with this company is the lack of disclosure regarding the asbestos liability. As the company went dark the disclosure has been scarce (they deregistered in 2012) and I was not able to find much about the legal proceedings. I was not able to find the specific dockets naming ABLT as the defendant apart from some individual cases and few on Justia. I also searched for Congoleum as this was the subsidiary of ABLT which is responsible for the asbestos claims. The subsidiary is now bankrupt but has set up a trust that should pay out the claims which can be found on the following link.

This trust is continuously paying out claims as detailed in its annual report but does not mention any connection to ABLT. In its reports ABLT also mentioned that the liability is tied to approximately 1,300 cases. The trust though is handling much more than that therefore it is not clear if the cases are connected to this. Also a side note; The trust expects that the claims might be worth around $99 million while having assets of around $200 million.

I then went and tried to understand how does the litigation process actually works. I found this good overview of the situation which mentioned that the claims are being handled by MDL 875 (federal mass tort program) which essentially bundled all the claims together regardless of the jurisdiction and started to clear them out.

MDL 875 has an updated website where one can see the progress of this process. From the latest update in January you can see that there is only handful of cases left (most of which are from Ohio which should not be connected to ABLT). Now there is likely difference between a case and a claim here. ABLT mentions that they were facing 1,338 claims involving 1,884 individuals which might still be handled by the MDL 875 as they received around 900 claims in the last year. So it maybe that they are still pending.

But the main question still remains. What exact cases is ABLT talking about here?

Another issue connected to this is that the company did a restatement in 2013 regarding the litigation liability which saw the amount of the liability go up significantly but the company did not say what exactly happened as seen here. They just mentioned that this was connected to 'non-cash adjustments'. This makes it harder to build a thesis without knowing what exactly happened. Although it might be that management might be willing to share.

Last 'minor' detail is that the company has a defined benefit pension plan which is not broken down in the new fillings and does not even have a separate item on the balance sheet. Prior to going dark the plan had a $10 million gap ($37 mil in obligations, $27 mil in assets) in funding which makes it a significant liability that needs to be understood.

Finally, the company also had dealings with the EPA which led to this settlement but the report seem to indicate that they might still have some residual claim left.

I will probably come back to ABLT soon but in the meantime I thought that I would just write up what I have so far in case anyone is interested.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.