Legal Intelligencer
(by Ben Clapp)
The risk transfer transaction structure is being increasingly employed in Pennsylvania and elsewhere as industrial site owners seek to clear long-tail environmental liabilities off their balance sheets. Commonly known as an environmental liability transfer, these transactions generally involve the purchaser acquiring the real property and other assets associated with an industrial facility and assuming responsibility for all environmental liabilities associated with that property, including site closure, demolition, and environmental remediation obligations. Often, the purchaser agrees to assume all such liabilities regardless of whether they arose prior to or after the purchaser’s acquisition of the facility. The purchaser also commonly provides a release of liability and indemnity to the seller. The costs associated with the purchaser assuming these obligations and liabilities are then deducted from the value of the assets being acquired to arrive at the transaction price. This price is frequently “upside-down,” with the seller paying the purchaser to acquire the property and assume its obligations.
While environmental liability transfers have been around for years, the transaction structure appears to have increased in popularity recently as power generators and other industrial companies are motivated to divest non-core assets and reduce environmental expenditures. In the power sector in particular, a shift away from coal-fired electricity generation has left power producers holding old coal plants that are closed or rapidly nearing closure, and ancillary assets such as coal ash landfills, all of which come with hefty environmental carrying costs. On the other hand, these properties are often well-suited for redevelopment, being industrially zoned, with access to electricity transmission lines and, often, shoreline infrastructure. Companies specializing in acquiring properties through environmental liability transfers believe that they can address environmental issues more efficiently and cost-effectively than the previous owners, leaving them well-positioned to profit by redeveloping the property and either selling or operating it once environmental obligations have been satisfied. …