OTEK and partners provide a trademarked product known as Positive Liability Transfer (‘PLT’) that assists companies in the management of Environmental Liability, removing all current and future environmental liabilities.
For organisations it can:
• Remove required reporting provisions from the Balance Sheet, freeing up that much needed cash for strategic growth and management;
• Turn contaminated sites into money from day one, rather than after an unknown cost and indefinite period of rectification;
• Allow a company to focus on their core business rather than environmental legacy issues, making better use of company resources;
• Provide fixed cost remediation with none of the consultancy costs, which are typically, hidden, or overruns;
• Can be used as a Sale and Leaseback option, transferring the environmental liability whilst continuing to operate the site or parts of the site.
OTEK has been involved in the management of cleanup of contaminated sites since 1992, and is well acknowledged as pre¬eminent in practical environmental consulting solutions.
Combined with a world leading insurance underwriter, risk management and investment organisations, PLT delivers a commercially advantageous risk solution for any organisation.
Why do we need Positive Liability Transfer?
Companies and their Boards are liable on an ongoing basis for contaminated operations and associated sites.
Legacy, or non-commercial sites, tend to be ignored, which presents costs and risks associated with maintenance, or potential injury litigation should someone get hurt on the site.
Removing these ‘forgotten’ liabilities limits a company’s exposure.
Companies have increasing statutory and accounting best practice requirements to quantify liabilities on balance sheets, and provisioning for environmental issues contamination and rectification.
The competitive advantage in removing or managing these ‘dirty’ aspects of a business is obvious.
Being considered environmentally responsible in the marketplace projects a positive image to shareholders, investors, banks and the media.
Today’s shareholders have expectations that a company will endeavour to maximise their value, while ensuring good corporate citizenship and environmental responsibility are paramount.
When companies lack focus on their core business due to the distraction of environmental contamination or legacy issues, this directly impedes a company’s bottom line. The net present value and the internal rate of return on company funds provide a real impetus to transfer environmental liability issues away from an organisation.
Positive Liability Transfer provides comfort for companies through an agreed solution that removes liabilities and provides a proven indemnification process, currently utilised by a number of Fortune 500 companies globally.
The Liability Transfer
Environmental Liability for contamination at your site or business is transferred into perpetuity.
The process provides complete contractual indemnification, with appropriate insurance and balance sheet guarantees, provided by an independent AFS licensee. Where applicable, compliance requirements associated with cleanup or pollution abatement notices imposed by regulatory agencies will be assumed.
The indemnity is unique and covers not only on-site and off-site migrated contamination, but also past, present and future; and known and unknown contamination. It also will cover changes to legislation.
Any exclusions are minimal and include aspects such as known but undisclosed contamination.
Types of PLT Transactions
Some Transaction Types
• Positive Liability Transaction
• Negative Liability Transaction
• Zero Dollar Transaction
• Third Party Developer Transaction
• Liability Transfer w/o Real Estate
• Sale/Leaseback
Special Purpose Vehicles
• 1/3 Developer – 1/3 Owner – 1/3 ELT / OTEK
• Development/Land / Remediation-Indemnity
Environmental Liability Indemnification by Three Levels of Solid Protection
The Due Diligence Process
The process of assessing whether or not Positive Liability Transfer is right for your company is simple, and does not incur any initial obligation.
When a Positive Liability Transfer opportunity is presented, OTEK utilise an independent professional organisation to provide information on a “commercial clean value” for the asset under consideration.
Based on desktop study, OTEK then provide an environmental impairment value.
These figures are put into a risk indemnity model using the Rasher-Colangelo formula, and a commercial offering is provided for consideration.
Subsequent research to refine the offering is possible if additional environmental data would provide further clarity to the environmental impairment value determined.
Positive Liability Transfer provides a mechanism through Special Purpose Vehicles (SPVs) or other agreed joint processes, should the vendor desire involvement in potential profits or benefits relative to the future development of the asset.
Indemnity – What does it Cover?
Onsite Contamination
• Above Ground
• On-Ground
• Below Ground
Offsite Contamination (migrated)
• Known and Unknown
• Past, Present and Future
Exclusions:
• Offsite Contamination that did not naturally
migrate offsite (land filled, etc.)
• Known, but undisclosed contamination
Positive Liability Transfer Facilititation
Typically, when a PLT asset purchase is accepted, an agreed amount of money is deposited to the vendor 8/or company directly, with the environmental impairment value deposited into a separate escrow fund.
This fund is managed by an independent organisation such as a bank, accountancy or law firm for the purposes of paying for the remediation of the specific site/asset.
This escrowed fund provides assurance to regulators, the community and other stakeholders that the Vendor is acting ethically, and that funds and indemnity are in place to handle any issues appropriately.
The vendor has paid an agreed amount, been indemnified and is now out of the picture.
Typical Positive Value Transaction
Flexibility in the removal of environmental liability allows PLT to be used as a means to assist organisations with:
Mergers and Acquisitions
By acquiring the associated environmental liability, PLT removes the deal barriers between interested parties.
Divestitures
The Positive Liability Transfer product simplifies divestment for organisations.
The PLT partners purchase the contaminated holdings and provide comprehensive indemnity.
This is an efficient, proven process which provides the vendor with peace of mind that they can focus on future opportunities without the concern of past issues resurfacing.
Sale Leaseback Operations
A sale/leaseback is a means of optimising the use of property/ operational assets.
This provides flexibility to use freed up cash (if provisioned) and funds from the sale to grow the company either in country, or pursue opportunities offshore, whilst continuing to use present facility(s).
Potential immediate and long term tax advantages can be considered that may be relevant to the company
Structured Settlements
Structured Settlements take a variety of forms.
For example, in a fixed cost remediation scenario PLT can provide surety regarding the removal of environmental liability.
It can rectify the contaminated asset prior to transfer, which allows for optimal achievable value on the open market.
In mergers and acquisitions PLT can remove those problem sites from the equation, allowing settlement to proceed without ongoing delays and headaches negotiating these problem sites.
Management of Present Assets
Positive Liability Transfer should be considered by any organisation as a means for handling environmental exposures on their present assets.
Through sale-leaseback; fixed cost remediation; creation of special purpose vehicles; and other processes, a company can use PLT as a real means of environmental liability management in a commercially advantageous manner.
PLT – Basic Pricing Model – Transfer of Risk
ELTC = (FMV)–(IC EL I CC R K)
ELTC: Environmental Liability Transfer Price
FMV: Fair Market Value (for property in question)
IC: Investigative Costs (initial data evaluation)
EL: Environmental Liabilities (remediation, management, contingencies)
I: Insurance (remediation overrun, long term unforeseen, off-site claims
CC: Carry Costs
R: Repositioning Costs
K: Return on Projected Risk (PLT Partners margin)
Financing / Funding PLT Transactions
Financing / Funding Options for Transfer of Environmental Liability
• Direct payment lump sum
• Sequential payment program
• Other assets can be used (real estate, minerals, securities, – not associated with the liabilities)
Benefits
Transference of Liability
All liabilities, known and unknown, contractual and statutory are transferred through the Positive Liability Transfer product affording maximum allowable release and insulation from future liability.
Guaranteed Cost Certainty
Positive Liability Transfer provides a fixed-cost solution for environmental obligations and uncertainties.
Elimination of Compliance Issues
With Positive Liability Transfer assumption of all regulatory compliance obligations freeing manpower and capital is achieved.
Best Economic Considerations
Positive Liability Transfer provides clients with the best possible economic methods to transfer environmental liability — winning approvals from some of the world’s most sophisticated accounting departments and boardrooms.
Clean up balance sheet
PLT Opportunity - Steps
- PLT Partners assess data to prepare initial offer
- Comprehensive review of environmental reports
- Comprehensive review of remedial strategy
- Data gap analysis
- Determination of liabilities
- PLT Partners gather component costs (insurance, risk premium)
- PLT Partners provide ELTC
- Negotiate
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