U.S. Announces $270 Million Bankruptcy Settlement with Tronox Inc.


On November 23, 2010, the U.S. Environmental Protection Agency (EPA), the U.S. Justice Department and the United States Attorney for the Southern District of New York today announced that Tronox Incorporated has agreed to resolve its environmental liabilities for $270 million and 88 percent of Tronox’s interest in a pending litigation. The bankruptcy settlement will reimburse EPA for past cleanup costs and fund future cleanups at contaminated sites across the country.

Tronox and 14 of its affiliates filed for protection under Chapter 11 of the U.S. Bankruptcy Code on Jan. 12, 2009 in the U.S. Bankruptcy Court for the Southern District of New York. At the time of the bankruptcy filing, the company was potentially responsible for past costs incurred and future response costs under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, commonly known as Superfund) and the Resource Conservation and Recovery Act (RCRA) relating to sites throughout the country, as well as for penalties under CERCLA, RCRA, the Clean Air Act, and the Clean Water Act.

Under the terms of the settlement, Tronox will pay $270 million in cash. The majority of the funding will be placed in five environmental response trusts for the cleanup of numerous sites, most of which have been contaminated with hazardous substances or waste. Non-cash assets, such as insurance and financial assurance assets worth at least $50 million, including property located in Henderson, Nev., will also be provided by Tronox to the environmental response trusts.

Tronox, a Delaware corporation based in Oklahoma City, Okla., is a multi-national chemical company that makes and sells titanium dioxide and other specialty chemicals used in plastics, paper and inks. The company has customers located in more than 90 countries and operates in North America, Europe, and Australia. Tronox was created through a spin-off from the Kerr-McGee Corporation. Several months after the spin-off was completed, Anardarko Petroleum Corporation purchased Kerr-McGee for $18 billion.

Tronox is currently involved in litigation against Anadarko and Kerr-McGee over allegations that those companies imposed years worth of legacy liabilities, including environmental obligations on Tronox, leaving Tronox insolvent and undercapitalized. The trial is expected to begin in late 2011 or early 2012. Eighty eight percent of any settlement awarded to Tronox, as a result of that litigation, will be used to fund additional cleanup efforts.

Before being considered by the bankruptcy court for approval, the settlement will be lodged with the bankruptcy court for a period of 30 days to provide public notice and to afford members of the public the opportunity to comment on the settlement.

Overview of the settlement agreement

Under the settlement agreement, the Governments will receive:

(1) $270 million in cash;
(2) 88 percent of Tronox’s interest in the pending Anadarko Litigation;
(3) Cash value of existing letters of credit and bonds applicable to certain sites;
(4) Certain Nevada assets, including real property located in Henderson, Nev.; and
(5) $3 million for certain expenses incurred in negotiating the settlement agreement.

EPA-lead sites will receive, either through the trusts described below or directly by EPA, approximately $59 million and 45 percent (of the 88 percent) of any proceeds from the Anadarko Litigation.

The approximate $59 million received for EPA-lead sites will be divided among the following sites, several of which are to be placed into the trusts described below:

1. Abandoned Uranium Mine Sites in and near the Navajo Nation territory

2. Federal Creosote Superfund Site in Manville, N.J.

3. Flat Top Mine in Ludlow, S.D.

4. Former wood treating site, Columbus, Miss.

5. Former wood treating site, Meridian, Miss.

6. Kerr-McGee Chemical Corporation Superfund Site in Navassa, N.C.

7. Kerr-McGee Chemical Corporation Superfund Site in Soda Springs, Idaho

8. Kerr-McGee Chemical, LLC Superfund Site in Jacksonville, Fla.

9. Kerr-McGee Superfund Sites in West Chicago, Ill.

10.  Lindsay Light Removal Sites in Chicago, Ill.

11.  Moss American Superfund Site in Milwaukee, Wis.

12.  North Cave Hills/Riley Pass Site in Harding County, S.D.

13.  Quivira Church Rock Mine Site, N.M.

14.  Toledo Tie Treatment Site in Toledo, Ohio

15.  Tronox Pigments (Savannah), Inc. facility in Savannah, Ga.

16.  Welsbach and General Gas Mantle Contamination Superfund Site in Camden and Gloucester City, N.J.

17.  White King/Lucky Lass Superfund Site in Lakeview, Ore.

Overview of trusts

The Governments’ environmental claims will be resolved pursuant to the settlement agreement, which provides for the creation of five environmental response trusts and a litigation trust.

Environmental Response Trusts
Litigation Trust
Treatment of other sites and/or claims under the settlement

Environmental Response Trusts

The settlement agreement contemplates the creation of five separate trusts to address the many sites Tronox owned as of the commencement of the bankruptcy cases but will not operate (except for the Henderson, Nevada facility, which Tronox will continue to operate through a lease) upon emerging from bankruptcy protection.

On the effective date of Tronox’s plan of reorganization, Tronox will place these sites into the appropriate environmental response trust and simultaneously fund the trusts. The funding of the environmental response trusts (approximately $205 million in total) will provide funding to the respective trustees for future cleanup work and other administrative costs associated with the sites. Funding is provided on a site-by-site basis through trust accounts with a possibility for reallocation.

In general, the environmental response trusts will have the following purposes:

  • conduct cleanup work at the sites;
  • manage the sites and pay associated administrative costs; and
  • ultimately try to sell or transfer the sites, subject to the approval of both EPA and the applicable state.

Trustees selected by the Governments for each environmental response trust will be appointed by the bankruptcy court to administer the trusts and to oversee site cleanups under the oversight of a lead governmental agency.

The five environmental response trusts will be governed by separate trust agreements, which remain the subject of ongoing negotiation.

Multi-State Trust
Site-Specific Trusts

Multi-State Trust

The vast majority of Tronox’s owned but non-operating sites, as well as a number of Tronox-owned service stations in several states, will be placed into a multi-state environmental response trust. The multi-state environmental response trust will hold both state- and federal-lead sites. The initial funding levels and the Anadarko Litigation percentage payouts for each site in the multi-state environmental response trust, including allocations for administrative costs, are set forth in the table below in alphabetical order by the state in which the sites are located.

Site and/or Location Lead Agency Cash Funding* Anadarko
Litigation Percentage**
Administrative funding - $16,936,352 1.155%
Birmingport, Ala. State $402,395 0.010%
Theodore (Mobile), Ala. State $21,587,129 6.000%
Jacksonville, Fla. (Ag Chem) EPA $4,220,981 2.000%
Jacksonville, Fla. (Petroleum Terminal) State $38,957 0.000%
Soda Springs, Idaho EPA $6,050,929 2.000%
Madison, Ill. State $1,294,468 0.150%
Sauget, Ill. State $3,960,429 0.100%
Indianapolis, Ind. State $366,782 0.050%
Rushville, Ind. State $1,795 0.001%
Bossier City, La. State $897,624 0.500%
Calhoun, La. State $2,720,947 0.250%
Kansas City, Mo. State $1,743,398 0.500%
Springfield, Mo. State $2,025,323 0.500%
Columbus, Miss. EPA $5,520,102 1.500%
Meridian, Miss. EPA $1,298,956 0.500%
Wilmington (Navassa), N.C. EPA $4,208,555 2.000%
Bristol Mine, Pioche, Nev. To be determined $17,952 0.003%
Caselton Mine, Pioche, Nev. To be determined $269,287 0.150%
Rome, N.Y. State $700,000 0.400%
Cleveland, Okla. State $8,036,586 1.000%
Cushing, Okla. State $8,719,555 2.000%
Avoca, Pa. State $4,101 0.000%
Beaumont, Texas State $1,651,132 0.500%
Corpus Christi, Texas State $215,477 0.000%
Texarkana, Texas State $2,537,176 0.500%
Service Stations (Owned) State $2,028,696 0.150%
Service Stations (Non-owned) State $315,989 0.500%
Other sites*** To be determined $0 3.000%
Total   $97,771,073 25.419%
* Does not include site-specific financial assurance, insurance, or real estate assets.
** Percent of 88% share of net Anadarko Litigation proceeds.
*** These are sites for which the U.S. and certain states are providing covenants not to sue under the settlement agreement.

Site-Specific Trusts

Four separate environmental response trusts are being created for the following sites due to the unique nature of the sites. The initial funding levels and the Anadarko Litigation percentage payouts for the four, non-multi-state trusts, including allocations for administrative costs, are set forth in the table below.

Environmental
Response Trust
Site(s) Description/Lead Agency(ies) Cash Funding* Anadarko
Litigation
Percentage**
Cimarron, Okla. A former nuclear fuel processing facility in Cimarron, Oklahoma. The Nuclear Regulatory Commission and the state of Oklahoma will be the lead agencies, with distinct responsibilities, for the trust. $8,638,384 1.839%
Henderson, Nev. Tronox’s active manufacturing facility in Henderson, Nevada. The state of Nevada will be the lead agency for the trust. $81,020,018 25.000%
Savannah, Ga. A semi-operational manufacturing facility in Savannah, Georgia. The state of Georgia will be the lead agency for the trust. $7,107,355 1.285%
West Chicago, Ill. Superfund sites associated with the Rare Earths Facility, a former thorium and other radioactive materials plant, in West Chicago, Illinois. EPA, the Illinois EPA, and Illinois Emergency Management Agency will be the lead and non-lead agencies. $10,356,820 0.000%
Total   $107,122,577 28.124%

 

* Does not include site-specific financial assurance, insurance, or real estate assets.
** Percent of 88% share of net Anadarko Litigation proceeds.

Litigation Trust

Tronox’s rights to the Anadarko Litigation, including Tronox’s rights to any relief awarded in the litigation, will be contributed to the litigation trust for the benefit of the Governments and Tronox’s tort claimants and certain non-governmental environmental claimants (collectively, the “tort claimants”). The litigation trust, to be funded by $25 million of the $270 million of up-front cash provided by Tronox under the settlement, will be governed by a separate agreement, which remains the subject of ongoing negotiation. The litigation trust will provide that the Governments and the tort claimants receive 88 percent and 12 percent, respectively, of Tronox’s interest in the Anadarko Litigation.

Treatment of other sites and/or claims under the settlement

Sites contaminated by Tronox and its predecessor companies that are not currently owned by Tronox are also receiving funding pursuant to the settlement agreement.  In addition, a portion of the $270 million of up-front cash will resolve the Governments’ various claims for past costs, natural resource damages, and penalties relating to Tronox-owned and non-owned sites.  The initial funding levels and the Anadarko Litigation percentage payouts for each such site, combining separate recoveries by the Governments for a particular site, are set forth in the table below in alphabetical order by the state in which the sites are located.

Site and/or Location Receiving Entity* Cash Funding** Anadarko
Litigation
Percentage***
Anniston, Ala. State $6,320 0.010%
Birmingham, Ala. State $179,525 0.100%
Mansfield Canyon, Ariz. FS $94,797, 0.150%
Juniper Mine, Calif. FS $191,490 0.303%
Jacksonville, Fla. (Ag Chem) EPA $1,896 0.003%
Brunswick, Ga. State $632 0.001%
Savannah, Ga. EPA and State $6,952 0.011%
Chicago, Ill. sites EPA $5,686,628 2.700%
Decatur, Ill. State $632 0.001%
Mount Vernon, Ill. State $94,797 0.150%
West Chicago sites, Ill. EPA and State $111,747 0.201%
Bossier City, La. State $106 0.00017%
Calhoun, La. State $107 0.00017%
Dubach, La. State $2,315 0.00366%
Hanover, Mass. State $1,044,660 1.653%
Kansas City, Mo. State $20,801 0.033%
Springfield, Mo. State $73,996 0.117%
Columbus, Miss. EPA $5,386 0.003%
Hattiesburg, Miss. State $389,310 0.100%
Wilmington (Navassa), N.C. EPA, DOI/NOAA, and State $917,732 0.503%
Federal Creosote site, Manville, N.J. EPA and State $3,398,485 5.575%
Welsbach site, Camden and Gloucester City, N.J. EPA $3,159,890 5.000%
Quivira Church Rock Mine, N.M. EPA $1,263,956 2.000%
Uranium mine sites in or near Navajo Nation territory EPA $12,039,562 20.000%
Ship Rock Mill, N.M. Navajo Nation $1,231,978 1.000%
Caselton Mine, Pioche, Nev. BLM $6,320 0.010%
Rome, N.Y. State $4,323 0.005%
Toledo, Ohio EPA and State $256,856 0.215%
Cleveland, Okla. State $112,749 0.160%
Gore, Kriner/Stigler, and Wynnewood sites, Okla. State $94,797 0.150%
Cushing, Okla. State $49,551 0.060%
Lakeview, Ore. EPA $448,812 0.250%
Flat Top Mine, S.D. EPA $631,978 1.000%
North Cave Hills/Riley Pass, S.D. EPA and FS $7,368,730 4.113%
Texarkana, Texas DOI and State $484,115 0.466%
Milwaukee, Wis. EPA $724,419 0.410%
Total   $40,106,350 46.453%
* Receiving entities include the following: EPA, various state environmental agencies, the Forest Service (FS), the Department of Interior (DOI), and the National Oceanic and Atmospheric Administration (NOAA), the Bureau of Land Management (BLM), and the Navajo Nation.
** Does not include site-specific financial assurance, insurance, or real estate assets.
*** Percent of 88% share of net Anadarko Litigation proceeds
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About Michael R. Blumenthal

For over 20 years, Michael has practiced environmental law spanning the United States in the acquisition and redevelopment of environmentally impaired brownfield sites and remediation of hazardous substance and hazardous waste properties. His practice covers corporate and real estate transactions and remediation under the federal Superfund Act, the Resource Conservation and Recovery Act (RCRA) hazardous waste law, their state counterparts, and brownfield redevelopment programs. A sampling of Michael’s environmental practice includes: •Representing industrial entities, public bodies, lenders and real estate developers involving the negotiating of cleanup agreements with the US Environmental Protection Agency, Ohio EPA, the US Department of Justice, numerous states and myriad buyers and sellers of real estate. •Assisting clients on the conduct of emergency removal actions; completion of longer-term remedial investigations and feasibility studies; hazardous waste corrective actions and demonstrating or challenging consistency with the National Contingency Plan; and selection of remedial action requirements. •Representing clients on projects varying in scope from modest single-party sites with petroleum contamination to industrial facilities with on and offsite air, soil and underground impact and National Priorities List sites with contaminated groundwater, surface water or sediment. •Representing clients in connection with the acquisition and redevelopment of brownfield properties, including due diligence, structuring acquisitions to avoid, minimize or allocate potential environmental liability, negotiating covenants not to sue and prospective purchaser agreements. Michael is a member of the American Bar Association Environmental Law Committee and the Ohio State Bar Association Environmental Law Committee. He was twice named an Ohio Super Lawyer by Law and Politics/Cincinnati Magazine (2006 and 2007) for his contributions in environmental law. Prior to joining in the formation of Waxman Blumenthal, Michael was an Assistant Attorney General with the State of Ohio in its Environmental Enforcement Section where he was responsible for enforcing Ohio’s hazardous and solid waste laws. Michael is also a member of the board of trustees of both Stella Maris, Inc. and Fresh Start, Inc., non-profit corporations focused on providing alcohol and chemical dependency treatment and mental health services to the indigent and homeless.
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