October 15, 2009

Essential Ingredients For Risk Transfer on Display in N.J.

Posted on October 15, 2009 by George von Stamwitz

Last month, Missouri based Environmental Liability Transfer (ELT) purchased a heavily contaminated site from Asarco in Perth Amboy, New Jersey. Due to bankruptcy court deadlines, the transaction was put together and closed in less than 90 days. The 70-acre site was a challenging candidate for risk transfer due to the perpetual nature of the risk. However, the transaction had the following essential components of a successful environmental risk transfer:

  1. a buyer (ELT) that was willing to take long term risk, beyond the term of environmental insurance;
  2.  a sophisticated seller that was facing an unattractive monetization of the remediation risk, in this instance an estimation proceeding in bankruptcy court. Monetization is a often also caused by regulatory financial assurance requirements and in the context of mergers and acquisitions;
  3. an active remedy of modest duration (in this instance stabilization of residuals and containment) that is defined with sufficient technical and regulatory certainty that partial collateralization of ELT’s indemnity by “cost cap” insurance (in this case by Zurich) is practicable.

            As mergers and acquisitions return from hibernation and financial assurance requirements become more stringent after the demise of several major corporations, interest in risk transfer is sure to grow. Not every deal is a good candidate, but those transactions that have the factors described above are worth considering to achieve a favorable, short term monetization of environmental risk.

Tags: Hazardous Materials

Hazardous Materials
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