UPDATE 1-Tronox creditors sue banks over spin-off deal

Mon Jul 27, 2009 4:40pm EDT

* Creditors sue banks over 2006 Tronox spinoff

* Creditors seek to recover payments, disallow claims

* Creditors claim Tronox was set up to fail

By Emily Chasan and Santosh Nadgir

NEW YORK/BANGALORE, July 27 (Reuters) - The official creditors' committee of bankrupt U.S. chemicals maker Tronox Inc TRXAQ.PK has filed a "fraudulent transfer" lawsuit against the banks that arranged its spinoff from Kerr-McGee in 2006.

In the suit, filed in U.S. bankruptcy court in Manhattan, the creditors' committee sued the banks that arranged its pre-bankruptcy loans, including Credit Suisse Group AG (CSGN.VX), JPMorgan Chase & Co (JPM.N), ABN Amro Bank NV [ABNNV.UL] and Citibank Inc (C.N).

The suit claims the Tronox spinoff was structured in such a way that Kerr-McGee was able to dump hundreds of environmental, tort claim, retiree and other legacy liabilities on Tronox.

The creditors said in the suit, which was filed on behalf of the company, that the spinoff had also stripped the chemical business of some of its best assets, leaving Tronox "grossly undercapitalized and without sufficient assets to pay its existing debts."

They claim that as part of the spinoff Tronox was forced to take out a $200 million secured loan, arranged by the banks, but did not receive any of the proceeds, which were instead "up-streamed" to Kerr-McGee.

The suit is seeking to claw back more than $125 million in transfers and interest for payments it made to Lehman Commercial Paper Inc and Credit Suisse, which were administrative agents on the company's pre-petition loans. Lehman was later replaced as primary administrative agent on the loan by Credit Suisse, according to the court papers.

The suit is also seeking to prove that the actions by all of the lenders harmed the company, and that its pre-bankruptcy lenders should not be allowed to receive any distributions from the company's Chapter 11 case until after all of Tronox's creditors not named in the suit are paid.

Lehman Brothers Holding LEHMQ.PK, which had served as Kerr-McGee's lead investment banker on the deal, was not named as a defendant in the suit because it is in bankruptcy itself, but the Tronox creditors' committee said it has filed a proof of claim for what it believes it is owed in Lehman's bankruptcy case.

Tronox, which sought bankruptcy protection in January, filed its own suit over the spinoff in May against Kerr-McGee and Anadarko Petroleum Corp (APC.N), which acquired Kerr-McGee for about $18 billion a few months after the spinoff. That suit also claimed the way Tronox was spun off doomed it to fail.

U.S. prosecutors in Manhattan and the Environmental Protection Agency have also filed civil charges against Anadarko and Kerr-McGee for fraudulently trying to avoid hundreds of millions of dollars in environmental liabilities.

Representatives for Citigroup, Credit Suisse and JPMorgan declined to comment. An ABN Amro representative was not immediately available.

The Tronox bankruptcy case is In re: Tronox Inc, U.S. Bankruptcy Court, Southern District of New York, No. 09-10156. (Reporting by Santosh Nadgir in Bangalore and Emily Chasan in New York; Editing by Gary Hill)

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