W.R. Grace asks to end bankruptcy financing deal

* Hopes to enter less-expensive financing plan

* Likely won't finish bankruptcy emergence plan by April 1

* Seeks to enter into exit financing engagement letters

* Shares rise 2.5 percent

NEW YORK, Jan 19 (Reuters) - Specialty chemical company W.R. Grace & Co (GRA.N) wants to end its financing agreement and enter into another, less-expensive plan as it gets ready to emerge from bankruptcy, according to court documents.

The new financing agreement will be "more cost-effective" and take advantage of the company's "substantial" cash reserves, W.R. Grace said in court documents dated Friday.

The current debtor-in-possession loan, which set to expire on April 1, provides a financing commitment of as much as $165 million.

The new agreement includes a one-year cash collateralized letter of credit facility of $100 million.

W.R. Grace also said in the documents that it would have trouble completing its bankruptcy emergence plan by April 1. In October, the company told Reuters it hoped to emerge from bankruptcy during the second quarter.

Closing arguments to confirm the plan are expected to wrap up on Jan. 25.

Columbia, Maryland-based W.R. Grace filed for bankruptcy in April 2001 to resolve asbestos personal injury and property damage claims against it. The company makes construction materials, as well as chemicals for the oil refining industry.

W.R. Grace has also asked U.S. Bankruptcy Judge Judith Fitzgerald to allow it to enter into exit financing engagement letters with bankruptcy-exit lenders Goldman Sachs & Co (GS.N) and Deutsche Bank Securities Inc (DBKGn.DE).

The company is seeking financing of up to $1.2 billion, it said in court documents on Friday.

Exit financing gives reorganized companies the cash to fund day-to-day operations. Engagement letters will allow the company to begin planning and carrying out this process by conducting lender meetings, drafting confidential memoranda, completing due diligence and preparing rating agency presentations.

"It is of critical importance that the debtors begin this work now so that the debtors can emerge from bankruptcy as soon as the legal process allows," the company's lawyers said in court documents.

W.R. Grace shares were up 66 cents, or 2.5 percent, at $27.06 in morning New York Stock Exchange trading.

The case is In re: W.R. Grace, U.S. Bankruptcy Court, District of Delaware, No 01-1139. (Reporting by Chelsea Emery; Editing by Lisa Von Ahn)