Tronox, Inc., successor to Kerr McGee Chemical’s lines of business (including former uranium processing, rail road tie manufacturing, and current titanium dioxide production facilities) filed for Chapter 11 bankruptcy protection on January 13, 2009. The company currently holds about 12% of the global titanium dioxide (a white pigment used in paint) market, and the market for the pigment has been in decline since the first quarter of 2007.
Tronox told a New York bankruptcy court that as of November 30, 2008 it had assets of $1.5 billion, estimated liabilities of $1.2 billion in addition to $350 million in publically traded debt. Tronox’s is currently traded on the “Pink Sheets” with shares listed in the $0.03 to $0.05 range, with a market cap in the range of $1.6 million. While still showing positive gross profit and positive EBITDA, the company has had trouble continuing operation with the environmental contingent liability it inherited from Kerr McGee.
The primary reason for the bankruptcy filing was the environmental liabilities the company assumed from Kerr McGee when it was spun off as an independent entity in March 2006. At the time of the spin off, Kerr McGee provided Tronox with up to a $100 million indemnity from the legacy pollution and required Tronox to assume $550 million in debt. To date, Tronox has spent $148 million on remediation costs (of which $75 million has been reimbursed by 3rd parties) and Kerr McGee (Anadarko Petroleum, which later purchased Kerr McGee) has provided about $4 million under terms of the indemnity provisions.
Cleanup costs have been averaging between $30 million and $50 million per year and may increase. Last September, Tronox was hit with a $280 million lawsuit filed by the US Environmental Protection Agency to cover cleanup costs associated with a Kerr McGee w00d-treatment plant in New Jersey that has been closed for more than 50 years.
The moral of the story, Do a Phase I Environmental Assessment before purchasing any commercial property, especially those used in manufacturing or mining.
Source: Price, Marie; The Journal Record, January 13, 2009, P1
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