Simpson Thacher & Bartlett Restructuring Partner Michael Torkin moderated a panel titled “Understanding Mass Tort Liability Defeasance Transactions” for the AIRROC Summer Membership Meeting. Panelists included Simpson Thacher Corporate Partner Ben Schaye and Associate Jamie Fell, as well as Aaron Eisenberg, Managing Director at Evercore. The panelists discussed the current state of the market for the acquisition of mass tort liability portfolios, as well as transaction structures, and seller and buyer motivations and considerations. A video replay of this presentation is available on AIRROC’s On Demand platform. There are the top takeaways:
- “Mass Tort Liability Defeasance Transactions” permit sellers to ring-fence long-tail liabilities into an appropriately capitalized entity, which a buyer can manage and run-off for less than the value of the acquired entity.
- Sellers gain balance sheet relief, protection against future claims, and free up resources previously devoted to liability management.
- Market is currently centered on asbestos-related and environmental claims, which feature well developed historical records that support reliable actuarial estimates upon which transactions can be priced.
- Planning for a liability defeasance transaction includes (1) identification of goals and due diligence, (2) development of an “internal perimeter” of liabilities to be subject to transaction, and (3) creation of a “step plan” to accomplish goals.
- It is critical to ensure that the target entity carrying the legacy liability remains solvent at each step of the plan and is appropriately capitalized thereafter; transactions are subject to attack via allegations of fraudulent transfer, successor liability, veil piercing or similar.
- Sellers should strive for complete finality and maximum protection to avoid or protect against “bounce-back” of claims or future transaction-related claims.