Tronox trusts oppose move to slash billions off Kerr-McGee damages

13 February 2014 22:47 Source:ICIS News

HOUSTON (ICIS)--A group of trusts have opposed a proposal by Kerr-McGee to slash billions from a potential $14bn environmental award made against it in litigation connected to the Tronox bankruptcy.

Kerr-McGee's parent company, Anadarko, said on Thursday that the filing by the trust was nothing unexpected.

The potential award is the result of litigation, which, in turn, is connected to the spin-off of Tronox, the acquisition of Kerr-McGee by Anadarko and the bankruptcy of Tronox.

Tronox was the chemical division of Kerr-McGee before its spin-off in 2006.

Before its spin-off, Tronox alleged that Kerr-McGee transferred valuable oil and gas assets out of Tronox while burdening it with massive environmental liabilities.

Tronox alleged that the strategy was part of a scheme to make Kerr-McGee an attractive acquisition target. Within months of the Tronox spin-off, Anadarko acquired Kerr-McGee for $18bn.

In January 2009, Tronox filed for bankruptcy protection under Chapter 11. It sued Kerr-McGee in May 2009.

During the bankruptcy, Tronox's largest creditors took over the litigation. These creditors included the Environmental Protection Agency (EPA), other environmental regulators and tort claimants. They are represented by the trusts.

Late in December, a judge wrote an opinion in favour of the trusts. Before a judgement is issued, the size of the award must be determined.

This could exceed $14bn.

Kerr-McGee argued that once its bankruptcy claims against Tronox are taken into account, the award should be reduced to $850m. Another scenario would lower the damages to $1.76bn.

The Tronox trusts oppose the reduction, saying that Kerr-McGee is trying to convert an equity interest into a creditor claim. The trusts allege that Kerr-McGee cannot do this.

If the court does maintain Kerr-McGee's claim, then it should be calculated at a recovery rate of 2.8% of the original claim, the trusts said. That rate falls in line with the approval of Tronox's confirmation plan.

Meanwhile, the trusts want the reward to be increased by at least 30.4%. This would compensate Tronox for the time that it was deprived from the oil and gas assets that Kerr-McGee transferred out of the company.

That would increase the award to a possible $20.8bn, excluding legal fees, the trusts said.

Tronox has since emerged from bankruptcy protection, and the titanium dioxide (TiO2) producer's stock is traded on the New York Stock Exchange (NYSE).

Tronox itself will not directly benefit from any award, since the litigation was taken over by the trusts.

Tronox, however, will stand to benefit through tax deductions that are connected to the trusts, the company said in a statement. The size of these deductions will be determined by how much money the trusts spend to clean up the polluted sites and to compensate people who suffered damages from these sites.

Tronox estimates that these tax benefits could total hundreds of millions of dollars annually and that these benefits could last for decades.

By Al Greenwood