EPA objects to Vertellus Specialties acquisition plan

September 6, 2016

Indianapolis-based chemical company Vertellus Specialties Inc. is at odds with the U.S. Environmental Protection Agency over whether its proposed sale would provide adequate resources to address environmental cleanup needs at Vertellus-owned sites in Indiana and elsewhere.

Vertellus filed for Chapter 11 bankruptcy protection on May 31. As part of that process, the company reached an agreement with its lenders for them to buy the company for $454 million. The offer was in the form of a credit bid, in which the lenders offered to cancel debt. The arrangement gave other interested parties until Aug. 29 to submit competing bids, but none was submitted.

The lenders group, also referred to as the stalking horse purchaser, calls itself Valencia Bidco LLC. A court hearing to approve the sale is scheduled for Sept. 7 in U.S. Bankruptcy Court for the District of Delaware.

But on Friday, the EPA—along with state environmental agencies in Indiana, Ohio and Utah—filed an objection to the proposed sale, calling it “a scheme to use bankruptcy law and credit bidding to evade compliance with environmental law, posing serious threats to public health and safety at several facilities being left behind across the country.”

The EPA said the plan fails to make provisions for future cleanup costs that could run as much as $137 million over the next century. The agency says Vertellus’ “wind-down budget”  includes a mere $450,000 for environmental compliance.

In a response filed Monday, Vertellus said it got the best deal it could during the sale process, noting that its investment banker contacted more than 100 potential acquirers.

Further, the company said the amounts set aside for environmental issues "are reasonable and appropriate given the historical monthly expenditures" on the properties in question.

And even if they prove inadequate, "casually ignored by the EPA is the fact that there is approximately $19.4 million of financial assistance in the form of letters of credit and a funded trust that is available to the EPA and state agencies to the extent the budgeted amount is insufficient," Vertellus said in its filing.

The properties at issue include two Indianapolis locations: a 120-acre site at 1500 S. Tibbs Ave. that is classified as Superfund site because of soil and groundwater contamination; and a 4- to 5-acre site at 737 Miley Avenue near the White River. Other sites named in court documents are in Provo, Utah; Cleveland and Dover, Ohio; St. Louis Park, Minnesota; and Fairmont, West Virginia.

In court papers, a consultant for the EPA estimated that over the next century, the Tibbs Avenue property would ring up environmental costs of $24.3 million. She estimated environmental costs over that span for the Miley Avenue property would total $10.7 million.

The six properties together would require $65 million in cleanup over the next 30 years and $137 million over the next 100, the EPA said in court filings.

The EPA said some of the six named sites were excluded from the proposed sale agreement, and that the pact includes “sweeping language” that relieves the purchaser of “any and all liability for practically all of [the] debtors’ past actions, including all environmental liabilities.”

The EPA also notes that because the proposed sale is in the form of a credit bid, it will not generate any actual cash that could be used for environmental cleanup.

In its response, filed Monday, Vertellus said "the debtors believe that the sale of the purchased assets as a going concern exceeds any value the debtors’ estates would receive if the debtors were to liquidate their assets piecemeal."

Vertellus also said that the EPA’s claims are general unsecured claims, which according to bankruptcy law have a lower priority than secured claims.

“The EPA’s argument that the debtors do not have sufficient cash to continue to comply with their environmental obligations after the closing of the sale is essentially a plan objection and is, therefore, inappropriate at this time,” Vertellus said in its filing.

Vertellus produces specialty chemicals for a variety of uses, including agriculture, nutritional, pharmaceutical, medical and personal care. Its owner is Wind Point Partners, a Chicago-based private equity firm.

Vertellus’ largest facility is its South Tibbs Avenue plant, which employs about 240 workers. The company also has operations elsewhere in the United States as well as Europe and Asia.

The company has cited slowing demand for two of its products—pyridine and picoline—and an increase in production from Chinese competitors as reasons for its financial troubles.

Pyridine is used in herbicides, insecticides, vitamin B3 and even Head & Shoulders shampoo. Picoline is used in agricultural chemicals.


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