UPDATE 2-Tronox files reorganization plan, cancels auction

* To cancel Dec. 21 auction

* To receive $425 mln in DIP financing

* Bondholders agreed to inject $105 mln in equity

* Company settles environmental claims with U.S. govt (Recasts; adds details and background)

Dec 21 (Reuters) - Bankrupt U.S. chemical maker Tronox Inc TRXAQ.PK has cancelled a previously scheduled auction for its assets and filed a reorganization plan backed by its bondholders that would allow the company to exit bankruptcy with a new debt facility and equity financing.

The company was scheduled to hold an auction on Dec. 21 for its titanium dioxide plants in the Netherlands and the United States, and a 50 percent joint venture interest in a titanium dioxide plant in Australia and electrolytic production facilities.

Rival chemical maker Huntsman Corp (HUN.N), which said it would bid $415 million for the assets, had been scheduled to be the lead bidder, or "stalking horse" at the auction.

Tronox, which filed for bankruptcy in January, said in court papers late on Sunday that its advisors had pursued a "dual path process" to build a competitive auction for its assets, and "maintained that it would not abandon the sale process unless it was confident that a viable standalone reorganization could be achieved."

Huntsman had recently asked the bankruptcy court to force Tronox to hold an auction.

Under the new reorganization plan, Tronox said it has entered into a credit agreement for a new $425 million debtor-in-possession (DIP) financing facility that will repay the company's outstanding secured debt, including the current DIP financing, the company said in a statement late on Sunday.

Also, the company's bondholders have committed to inject $105 million of equity into its balance sheet through a rights offering, it said.

All claims related to Tronox's legacy environmental sites will be settled with the U.S. government through creation of environmental remediation trust to which Tronox will contribute $115 million in cash, the company said.

The holders of claims related to potential asbestos, benzene and creosote liabilities against Tronox will receive $7 million in cash as per the reorganization plan, Tronox said.

Tronox filed for Chapter 11 bankruptcy protection less than three years after being spun off from Kerr-McGee, now part of Anadarko Petroleum Corp (APC.N).

The company had been hit by a drop in demand for titanium dioxide pigment, used in paint, plastics and paper, and was struggling with legacy liabilities from the spinoff.

The case is: In re: Tronox Inc, U.S. Bankruptcy Court, Southern District of New York, No. 09-10156. (Reporting by Sakthi Prasad and Santosh Nadgir in Bangalore; Editing by Anshuman Daga, Maju Samuel)