WASHINGTON — A U.S. bankruptcy judge in Texas has concluded that Grupo Mexico should regain control of Asarco even though it had been accused of gutting the century-old mining/smelting company and the federal government and 11 states including Washington opposed the reorganization plan.
U.S. Bankruptcy Judge Richard Schmidt ruled late Monday that Grupo Mexico had outbid an Indian-based global mining company, Sterlite Industries, for Asarco.
Washington state stands to receive $164 million under the reorganization to pay for the clean up of arsenic, lead and other heavy metals and toxic pollutants released during operations at Asarco’s former smelter in Ruston, Wash., and other company sites in the state. The federal government will receive more than $1 billion to clean up Superfund sites polluted by Asarco operations.
“We get paid the same whether it was Grupo or Sterlite,” said Elliott Furst, a senior counsel in the ecology division of the Washington state Attorney General’s Office. “It’s hard to say who wins or loses. But it might be over.
“This has been going on since August 2005, and we would like to get the money and start cleaning up sites.”
Even so, the states and the Department of Justice told Schmidt in Corpus Christi, Texas, 10 days ago they didn’t trust Grupo Mexico because its earlier “fraudulent conduct may foretell its future corporate behavior.”
And the states and the Justice Department expressed concern that, in the future, other companies may try to shed or lessen their environmental liabilities by seeking bankruptcy protection.
“More and more large and complex bankruptcies involve significant governmental environmental claims,” they said in a brief.
The ruling could be the final chapter in the four-year-old case, which Schmidt called “perhaps the largest and most complex” in bankruptcy history involving environmental liabilities.
Grupo Mexico, which is controlled by one of Mexico's wealthiest families, bid $2.2 billion for its former subsidiary while Sterlite offered $2.1 billion. Though Grupo Mexico is Asarco’s parent company, Schmidt had turned over its operation to an independent board shortly after the filing for bankruptcy reorganization.
Both Sterlite and Grupo Mexico promised to pay off Asarco’s creditors and continue operations of the Tucson, Ariz.-based company. But in his 133-page decision, Schmidt said he preferred Grupo Mexico’s financing plan.
Schmidt took note of the objections of the states and federal governments to Grupo Mexico’s reorganization plan, but said it was a better plan and the company had the “resources and credit worthiness” to satisfy all of Asarco’s financial obligations.
Originally, more than a dozen states and the federal government filed $6 billion in environmental claims involving 21 Asarco sites. Through negotiations, that was whittled down to about $1.8 billion. Asarco also faced $1 billion to $2 billion in asbestos-related claims.
Washington state initially sought $600 million worth of claims in the bankruptcy with about $300 million involving the Ruston smelter.
Asarco operated the smelter for more than 100 years before shutting it down in 1985. But during operations, a plume of pollutants from its 562-foot smokestack settled on 1,000 square miles in Pierce, Thurston and King counties.
All told, the state will receive a total of about $164 million plus interest from the bankruptcy and a previously established cleanup trust fund. About $94 million of that will be spent on cleaning up the remaining fallout from the Ruston plume.
The federal Environmental Protection Agency will also receive about $27 million under the reorganization for work on Ruston.
The smokestack and the smelter have been torn down and part of the site is being transformed into the Point Ruston mixed-use development.
Furst and other attorneys close to the case said Grupo Mexico probably paid more for Asarco than it intended because of a ruling earlier this year in a related case.
U.S. District Judge Robert Hanen in Brownsville, Texas, ruled that Grupo Mexico owed Asarco at least $6.5 billion for the “fraudulent” transfer of Asarco’s majority interest in a lucrative Peruvian mining company to another of Grupo’s subsidiaries. The transfer had taken place as Asarco teetered on the edge of bankruptcy.
Winning that case against Grupo was considered somewhat of a long shot, but in the end it may have pressured Grupo into significantly upping its final bid for Asarco. That final bid, the seventh from Grupo Mexico, was submitted to the bankruptcy court just over two weeks ago.
“I think Judge Hanen’s ruling had a huge impact,” said Furst. “Yes, Grupo is getting Asarco back, but for how many millions more? They didn’t get away with anything.”
Leif Clark, another Texas bankruptcy judge who teaches at the University of Texas School of Law, agreed. “They saved themselves $6.5 billion by taking over Asarco,” Clark said.
Under the reorganization plan, Hanen’s ruling would be dropped and Grupo Mexico would no longer be liable for the $6.5 billion judgment. Hanen is ultimately responsible for approving the Schmidt’s reorganization plan for Asarco.
Clark said he wasn’t surprised that Schmidt had accepted Grupo Mexico’s plan despite its previous conduct. “Bankruptcy is not a morality play,” Clark said. “It’s not about getting the bad guy. In the end, it is about the bottom line.”