Only two companies in the world can pay their bills so reliably that they wield perfect credit ratings from both S&P and Moody’s. But one of them, Johnson & Johnson, just turned to bankruptcy court to deal with customers who argue the company’s products gave them cancer, Bloomberg News reported. The consumer products giant put a unit into bankruptcy on Thursday because it owes at least $2 billion to people who say they got sick from J&J baby powder tainted with asbestos. J&J is far from the usual user of chapter 11 protection. It’s got about $25 billion of cash and a $10 billion line of credit — easily enough to set up the proposed victims’ trust fund. Yet, J&J isn’t the first solvent company facing asbestos claims to take this route. At least three others — Georgia Pacific, Trane Technologies and Saint-Gobain Corp. — are all trying the same strategy. In a move known in legal circles as the “Texas Two-Step,” bankruptcy judges have allowed companies facing major litigation claims to scramble their corporate org charts and set up special units to house their asbestos liabilities using a business-friendly Texas law. A company first moves its corporate charter to Texas, then splits in two: one part holds its healthy assets and businesses, while the other has the asbestos claims.
