SEC Order Granting Application: USG Corporation

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Trust Indenture Act - Exemptive Orders

SEC Order Granting Application

Securities and Exchange Commission (File No. 22-28586)

Order Granting Application: USG Corporation

April 23, 2002

USG Corporation has filed an application under Section 310(b)(1)(ii) of the Trust Indenture Act of 1939. In that application, USG has asked the Commission to find that the trusteeship of National City Bank of Indiana as successor trustee under:

an indenture dated October 1, 1986, between USG and Harris Trust and Savings Bank, a predecessor trustee, with respect to 9-1/4% Senior Notes due September 15, 2001 and 8-1/2% Senior Notes due August 1, 2005, and

12 indentures between USG and certain predecessor trustees, with respect to tax- exempt bonds, that have not been qualified under the 1939 Act, is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify National City from acting as trustee under these indentures.

A description of the indentures and the basis for the request is more fully set forth in the application from USG dated December 12, 2001. That application is on file in the Commission's Public Reference Section, File No. 22-28586, 450 Fifth Street, NW, Washington, DC 20549.

It appears to the Commission, upon consideration of the application, that the trusteeship of National City under the indentures described above is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify National City from acting as trustee under any of the indentures.

USG has waived notice of a hearing on this matter and the Commission issued a notice on March 22, 2002 giving interested persons until April 22, 2002 to request a hearing on the application. As of April 23, 2002, there have been no requests for a hearing on the application. IT IS ORDERED that the trusteeship of National City under the indentures described in this order does not disqualify National City from acting as trustee under these indentures.

For the Commission, by the Division of Corporation Finance, pursuant to delegated authority.

Margaret H. McFarland Deputy Secretary

SEC Notice of Application

Securities and Exchange Commission (File No. 22-28586)

Application and Opportunity for Hearing: USG Corporation

March 22, 2002

The Securities and Exchange Commission gives notice that USG Corporation has filed an application under Section 310(b)(1)(ii) of the Trust Indenture Act of 1939. USG asks the Commission to find that the trusteeship of National City Bank of Indiana as successor trustee under:

an indenture dated October 1, 1986, between USG and Harris Trust and Savings Bank, a predecessor trustee, with respect to 9-1/4% Senior Notes due September 15, 2001 and 8-1/2% Senior Notes due August 1, 2005, and

12 indentures between USG and certain predecessor trustees, with respect to tax- exempt bonds listed in Exhibit A, that have not been qualified under the 1939 Act, is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify National City from acting as trustee under these indentures.

Section 310(b) of the 1939 Act provides, in part, that if a trustee under an indenture qualified under the Act has or acquires any conflicting interest described in that section, the trustee must, within ninety days after ascertaining that it has a conflicting interest, either eliminate the conflicting interest or resign. Section 310(b)(1) provides, with stated exceptions, that a trustee shall be deemed to have a conflicting interest if the trustee is also a trustee under another indenture under which any other securities of the same obligor are outstanding. However, under Section 310(b)(1)(ii), specified situations are exempt from the deemed conflict of interest under Section 310(b)(1). Section 310(b)(1)(ii) provides, in part, that an indenture to be qualified shall be deemed exempt from Section 310(b)(1) if:

the issuer shall have sustained the burden of proving, on application to the Commission and after opportunity for hearing thereon, that trusteeship under the indenture . . . is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify such trustee from acting as such under one of such indentures . . . . Section 310(b)(1)(ii) (emphasis added).

Under this provision, National City's trusteeship under the indentures may be excluded from the operation of Section 310(b)(1) if USG sustains the burden of proving, on application to the Commission, that a material conflict of interest is not so likely as to make it necessary in the public interest or for the protection of investors to disqualify National City from acting as trustee under any of the indentures.

In its application, USG alleges that:

USG issued the 9-1/4% Senior Notes due September 15, 2001 and the 8-1/2% Senior Notes due August 1, 2005 in registered public offerings in the United States (Registration Statement Nos. 33-52433 and 33-60563), and USG qualified the indenture under the 1939 Act. USG issued the tax-exempt bonds under indentures that were not qualified under the 1939 Act. The securities outstanding under the indentures rank pari passu with each other and are wholly unsecured. However, none of the indentures references any other indenture.

As a result of a Resignation, Appointment and Acceptance Agreement, dated and effective June 18, 2001, National City succeeded as trustee under the qualified indenture. Under various other Resignation, Appointment and Acceptance Agreements that are listed in Exhibit A, National City has succeeded, or is in the process of succeeding, as trustee under the non-qualified indentures.

As of the date of USG's application, USG is in default under the indentures due to its filing of a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code on June 25, 2001. The commencement of a voluntary case under the U.S. Bankruptcy Code constitutes an "Event of Default" under Section 6.01 of the qualified indenture. The commencement of a voluntary case under the U.S. Bankruptcy Code also constitutes an "Event of Default" under each of the non- qualified indentures. Thus, USG is in default under all of the indentures.

Section 310(b)(1)(i) exempts an indenture from the provisions of Section 310(b) "if the indenture to be qualified and any such other indenture or indentures . . . are wholly unsecured and rank equally, and such other indenture or indentures . . . are specifically described in the indenture to be qualified or are thereafter qualified." None of the indentures references any other indenture. USG asserts that the absence of these references does not create a risk of material conflict between the indentures where none otherwise exists.

USG asserts that because the securities outstanding under all of the indentures rank equally with one another in right of payment and are wholly unsecured, it is highly unlikely that National City would ever be subject to a conflict of interest with respect to issues relating to the priority of payment. National City would neither be in a position, nor required by the terms of any indenture, to assert that securities outstanding under one indenture are entitled to payment prior to payment of claims under another indenture.

Further, USG asserts that there are no material variations among the default and remedy provisions of the indentures. USG asserts that because of the similarity of these provisions, including the cross-default provisions, and the defaults under all of the indentures, it is highly unlikely as a practical matter that National City would find itself in a position of proceeding against USG for a default under one indenture but not another indenture.

USG asserts that it is in the best interest of USG and the holders of the securities under the indentures that National City serves simultaneously as trustee under all the indentures. National City is not a creditor of USG and has no business relationship with USG other than under the indentures. National City's trusteeship also will allow USG to avoid the significant duplicative costs associated with having more than one trustee and their separate professionals review, understand, and administer similar indentures, and interact with USG and other parties in interest as USG works to address its present financial circumstances.

USG has waived notice of a hearing in connection with this matter. Any interested persons should look to the application for a more detailed statement of the asserted matters of fact and law. The application is on file in the Commission's Public Reference Section, File No. 22-28586, 450 Fifth Street, NW, Washington, DC 20549. The Commission also gives notice that any interested persons may request in writing that a hearing be held on this matter. Interested persons must submit those requests to the Commission no later than April 22, 2002. Interested persons must include the following in their request for a hearing on this matter:

the nature of that person's interest;

the reasons for the request; and

the issues of law or fact raised by the application that the interested person desires to refute or request a hearing on.

The interested person should address this request for a hearing to: Margaret H. McFarland, Deputy Secretary, U.S. Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. At any time after April 22, 2002, the Commission may issue an order granting the application, unless the Commission orders a hearing.

For the Commission, by the Division of Corporation Finance, pursuant to delegated authority.

Margaret H. McFarland Deputy Secretary

EXHIBIT A

Tax-Exempt Obligations of, or assumed by, USG Corporation

Date of Indenture

Description of Issue

Predecessor Trustee

Principal Outstanding

Interest Rate

Date Trusteeship Assumed

Maturity Date

12/01/84

Nolan County Industrial Development Corporation Industrial Development Revenue Bonds (United States Gypsum Company Project) Series 1984 due 2014

Bank One

$ 1,000,000

7.25%

06/21/01

12/01/2014

08/01/97

State of Ohio Solid Waste Disposal Revenue Bonds (USG Corporation Project) Series 1997 due 2032

Bank One

$ 45,000,000

5.60%

06/22/01

08/01/2032

03/01/98

State of Ohio Solid Waste Disposal Revenue Bonds (USG Corporation Project) Series 1998 due 2033

Bank One

$ 44,400,000

5.65%

06/22/01

03/01/2033

08/01/99

State of Ohio Solid Waste Disposal Revenue Bonds (USG Corporation Project) Series 1999 due 2034

Bank One

$ 9,000,000

6.05%

06/22/01

08/01/2034

07/01/99

Pennsylvania Economic Development Financing Authority Solid Waste Disposal Revenue Bonds (USG Corporation Project) Series 1999 due 2031

Chase

$110,000,000

6.00%

07/13/01

06/01/2031

09/01/77

Town of Shoals, Indiana Economic Development Revenue Bonds (United States Gypsum Company Project) Series A dated 1977 due 2007

Bank One

$ 1,000,000

5.90%

08/01/01

09/01/2007

09/01/77

City of Fort Dodge, Iowa Industrial Development Revenue Bonds (United States Gypsum Company Project) Series A dated 1977 due 2007

Bank One

$ 1,000,000

5.90%

09/18/01

09/01/2007

10/01/84

The Trustees of the Blaine County Industrial Authority Industrial Development Revenue Refunding Bonds (United States Gypsum Company Project) Series 1984 due 2010

Bank One

$ 1,000,000

7.25%

Pending

10/01/2010

10/01/84

Jacksonville Port Authority Industrial Development Revenue Refunding Bonds (United States Gypsum Company Project) Series 1984 due 2014

Bank One

$ 1,000,000

7.25%

09/06/01

10/01/2014

09/01/98

City of East Chicago, Indiana Solid Waste Disposal Revenue Bonds (USG Corporation Project) Series 1998 due 2028

Bank One

$ 10,000,000

5.50%

10/16/01

09/01/2028

08/01/99

City of East Chicago, Indiana Solid Waste Disposal Revenue Bonds (USG Corporation Project) Series 1999 due 2029

Bank One

$ 10,000,000

6.375%

10/16/01

08/01/2029

12/01/99

State of Oregon Solid Waste Disposal Facilities Economic Development Revenue Bonds Series 192 (USG Corporation Project) Series 1999

Wells Fargo

$ 11,000,000

6.40%

10/01/01

12/01/2029

Application for Exemption

Dean H. Goossen Corporate Secretary USG Corporation 125 South Franklin Street Chicago, IL 60606-4678 (312) 606-3994

December 12, 2001

David B. H. Martin, Director Division of Corporation Finance Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549

Re:

Application for exemption under § 310(b)(1)(ii) of the Trust Indenture Act of 1939, as amended

Ladies and Gentlemen:

USG Corporation ("USG") hereby applies for an exemption under § 310(b)(1)(ii) of the Trust Indenture Act of 1939, as amended (the "TIA"), permitting National City Bank of Indiana ("National City") to concurrently serve: (i) as successor indenture trustee with respect to a trust indenture qualified under the TIA under which two equal-ranking series of securities are outstanding, and (ii) as successor indenture trustee with respect to twelve outstanding tax-exempt bond issues, each of which was issued pursuant to a trust indenture which was not qualified (nor required to be qualified) under the TIA.

Relevant Facts

USG, a Delaware corporation, entered into a TIA-qualified Indenture with Harris Trust and Savings Bank 1 on October 1, 1986 (the "Qualified Indenture"), a copy of which is attached to this Application as Exhibit A-1 . There are currently two outstanding series of securities issued under the Qualified Indenture; namely, (i) $130,790,000 of 9-1/4% Senior Notes due 2001, a copy of the designating resolutions for which are attached as Exhibit A-2 , and (ii) $150,000,000 of 8-1/2% Senior Notes due 2005, a copy of the designating resolutions for which are attached as Exhibit A-3 (the "Qualified Securities"). While the Qualified Securities were previously secured under a separate instrument by certain collateral held by Wilmington Trust Company, said collateral was released by Wilmington Trust Company on May 21, 1997 and all of the Qualified Securities are now unsecured and rank pari passu .

In addition to the Qualified Securities, USG is also the obligor, or has assumed the obligations, with respect to certain tax-exempt securities outstanding under indentures which are not qualified under the TIA (the "Non-Qualified Indentures"). These securities were issued by various governmental entities and political subdivisions and are listed on the attached Exhibit B ("Non-Qualified Securities") 2 . All of the Non-Qualified Securities are also unsecured and rank pari passu with each other and with the Qualified Securities. The Qualified Indenture does not describe any of the Non-Qualified Indentures, and none of the Non-Qualified Indentures describe any other Indenture.

On May 14, 2001, Bank One approached National City about serving as successor indenture trustee under the Qualified Indenture and under each of the Non-Qualified Indentures for which Bank One was serving as Trustee. Bank One is a creditor of USG and wanted to resign to avoid a potential conflict of interest. Subject to the requisite procedures to formalize such appointments, National City agreed to accept such trusteeships. National City has no other business relationship with USG. On June 18, 2001, Bank One's resignation as indenture trustee under the Qualified Indenture and National City's acceptance of appointment as successor trustee became effective.

USG and certain affiliated companies, including United States Gypsum Company, filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code on June 25, 2001. The institution of such Chapter 11 proceedings constituted an event of default as defined under the Indentures (see Exhibits A-4, B & C for information regarding the default provisions of the Non-Qualified Indentures).

The various indenture trustees with respect to the indentures pertaining to the Non-Qualified Securities also resigned to avoid or eliminate conflicts of interest. To facilitate an economical and efficient administration of the Qualified and Non-Qualified Securities, all of which are unsecured and all of which rank pari passu , USG proposed that National City serve as the successor indenture trustee with respect to the Qualified Indenture and all of the Non-Qualified Indentures. National City agreed to accept such appointments (and has accepted such appointments as indicated on Exhibit B ), but has requested that USG seek an exemption under § 310(b)(1)(ii) of the TIA. At a meeting of the largest unsecured creditors of USG, which was held in Wilmington, Delaware on July 12, 2001, National City, in its capacity as successor indenture trustee with respect to the Qualified Securities, was appointed by the United States Trustee to serve on the official unsecured creditors committee with respect to the bankruptcy proceedings. In its application for such appointment, National City disclosed that it anticipated serving as successor indenture trustee with respect to the Qualified Indenture and Non-Qualified Indentures.

Applicable Law

The Trust Indenture Act of 1939, as amended, imposes certain duties on indenture trustees under TIA qualified indentures upon the ascertainment of a conflict of interest. These duties include the resignation of the indenture trustee and/or the providing of notice to the security holders. Under the TIA, a conflict of interest arises where the indenture securities are in default (as defined in the indenture) and "such trustee is trustee under another indenture under which any other securities ... of an obligor upon the indenture securities are outstanding..." TIA § 310(b)(1), 15 U.S.C. § 77jjj(b)(1) (1997). The TIA also provides, however, that this paragraph (1) shall not apply (through a provision deemed to be contained in the indenture) where:

(i)

the qualified indenture and all non-qualified indentures are wholly unsecured and rank equally, and each non-qualified indenture is specifically described in the qualified indenture; or

(ii)

the issuer shall have sustained the burden of proving, on application to the Commission and after opportunity for hearing thereon, that trusteeship under the indenture to be qualified and such other indenture or under more than one outstanding series under a single indenture is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify such trustee from acting as such under one of such indentures or with respect to such series;

Trust Indenture Act § 310(b)(1)(ii). (The Qualified Indenture does not contain any provision excluding this section.) The Securities and Exchange Commission has delegated authority to issue orders pursuant to § 310(b)(1)(ii) to the Director of the Division of Corporation Finance. 17 CFR § 200.30-1(d)(3) (2001).

Application

The filing by USG of a voluntary petition in bankruptcy on June 25, 2001 constituted an event of default under the Indentures. Accordingly, during the continuance of such default, National City's service as indenture trustee with respect to both the Qualified and Non-Qualified Indentures may be deemed to create a material conflict of interest under § 310(b)(1) of the TIA. Clauses (A), (B), and (C) of § 310(b)(1) appear inapplicable to these facts since all of the securities are unsecured. Clause (i) of the proviso of § 310(b)(1) does not appear to apply because the Qualified Indenture does not specifically describe the Non-Qualified Indentures.

§ 310(b)(1)(ii) of the TIA specifically provides that an issuer may apply to the Commission for an order finding that the trusteeship of multiple indentures is not so likely to cause a material conflict of interest as to make it necessary for the protection of investors or in the public interest to disqualify the trustee. USG submits that the current situation is precisely the fact pattern which is appropriate for such an order. In this situation: (i) all security holders under the Qualified and Non-Qualified Indentures rank pari passu , and (ii) all of such Qualified and Non-Qualified Securities are unsecured. If the Qualified Indenture had described the Non-Qualified Indentures, no conflict of interest would be deemed to exist under § 310(b)(1)(i). Since many of the Non-Qualified Indentures were created subsequent to the Qualified Indenture, such cross-referencing was not possible absent a subsequent supplemental indenture. The absence of such cross-referencing in the Indentures certainly does not create a risk of material conflict between the Qualified and Non-Qualified Securities where none otherwise exists.

The conditions of the automatic exception in § 310(b)(1)(i) require, inter alia , that separate indentures or separate series under one indenture are unsecured and rank equally. This evidences a presumption in the statute that, where indenture security holders under separate indentures of one obligor are unsecured and rank equally, one trustee may serve under both indentures without a conflict being deemed to exist. See, e.g., Texas Commerce Bank National Association , October 9, 1985, where the Staff discusses modified indenture language intended to address potential conflicts under the TIA among series issued under a single indenture, and states, "where the series are all unsecured and rank equally, no conflict typically exists, and the trustee may represent all series... ." Indeed, as a practical matter, it is unlikely that the interests of the Qualified and Non-Qualified Security holders will materially diverge in the bankruptcy proceeding, given their pari passu and unsecured status.

This view is supported by analysis of the default and remedial provisions of the Indentures, which are compared in Exhibits A-4, B and C , and which generally allow a standard form with immaterial variations. Such variations include, for example, minor differences in grace periods. USG is in default under all of the Indentures. While differences may exist in the language of the various default provisions, none of these differences appears material, particularly in view of the fact that the filing for bankruptcy protection caused a default under each Indenture. Any differences in the remedy provisions are similarly not material. Notably, some of the Indentures immediately accelerate the principal and interest upon bankruptcy, under other Indentures the Trustee has the discretion to accelerate. This disparity is meaningless in the bankruptcy context because the bankruptcy filing prevents the immediate acceleration of the total amounts due, regardless how acceleration is to be effected. Therefore, no material differences exist in the default and remedy provisions of the Indentures. Since the Indentures all are unsecured and rank pari passu , their priority for payment will be the same under the bankruptcy proceedings and their interests should not materially diverge.

Moreover, there is no likelihood that a future series of securities that may be issued, if any, under the Qualified Indenture would be other than unsecured and equal in rank with the Qualified Securities. Notably, the Qualified Indenture defines "securities" to be issued in the first recital (p. 1) as "evidencing unsecured indebtedness." Accordingly, such a hypothecated future series would not be secured and would not rank senior to the outstanding Qualified Securities. While the Qualified Indenture does not expressly authorize a subordinated series, it does not appear to forbid them. However, if such an issuance occurred after the Indentures were no longer in default, such an issuance would not appear to create a conflict under § 310(b). In any event, albeit highly unlikely, if an issuance was proposed by USG creating Qualified Securities which were not pari passu and National City concluded at the time that such proposed issuance would create a material conflict of interest, National City has indicated that it would request that USG appoint a successor indenture trustee under the Qualified Indenture, at least for such series.

Finally, no useful purpose would appear to be served by requiring separate trustees on the Qualified Indenture and the Non-Qualified Indentures. Under the circumstances, the interest and protection of investors under the indentures would be best served by allowing a single trustee, because this will reduce expense -- conserving assets of the bankruptcy estate -- and should facilitate more efficient administration of claims in the bankruptcy proceeding.

Based on the foregoing, USG believes that National City's trusteeship for the Qualified and Non-Qualified Securities is not so likely to involve a material conflict of interest as to require National City's disqualification for the protection of investors or in the public interest. Accordingly, USG respectfully requests that it be granted exemption under § 310(b)(1)(ii) of the Trust Indenture Act of 1939, as amended, permitting National City to concurrently serve as indenture trustee under the Qualified Indenture and each of the Non-Qualified Indentures.

USG hereby waives notice and hearing with respect to this application.

Please feel free to contact USG, or Eric R. Moy, of Barnes & Thornburg, counsel for National City, if you need additional information concerning this application. Mr. Moy's telephone number is (317) 231-7298.

Respectfully submitted,

USG CORPORATION

By: /s/ Dean H. Goossen

Title: Corporate Secretary

cc:

Catherine S. Krug, National City Bank of Indiana Eric R. Moy, Barnes & Thornburg

1

Harris Trust and Savings Bank was succeeded by The Bank of New York as successor indenture trustee under the Qualified Indenture, and The Bank of New York was later succeeded by Bank One Trust Company, National Association ("Bank One").

2

In addition, United States Gypsum Company, a wholly owned subsidiary of USG, is obligor with respect to certain tax-exempt bonds under other non-qualified, unsecured indentures listed on Exhibit C . USG has neither guaranteed nor assumed these securities. National City has assumed or proposes to assume trusteeship under all of these indentures as well. For purposes of § 310(b) of the TIA, United States Gypsum Company is deemed a separate obligor so that National City's service in this capacity should not be deemed to raise a material conflict of interest under the TIA. See Trust Indenture Act Release No. 39-16, November 14, 1941. See also Division of Corporation Finance Manual of Publicly Available Telephone Interpretations (July 1997) No. T - 21.

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Modified: 01/14/2003