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UPDATE 3-Lyondell, U.S. reach deal on environmental claims

* Agrees to pay $250 mln into funds for cleanup

* Funds divided between two custodial trusts

* Deal to allowed unsecured claims of $1.18 bln

* Gov’t agencies filed claims totaling about $5.5 bln (Adds details about properties transferred to Environmental Custodial Trust)

NEW YORK, March 31 (Reuters) - Lyondell Chemical Co [ACCELC.UL] has reached a settlement worth about $250 million with the United States and various state governments to resolve a slew of environmental claims and liabilities, and is seeking court approval of the deal.

Lyondell plans to fund two trusts to oversee the cleanup of hazardous waste sites in Pennsylvania, California and other states, as well as pay governmental agencies for administrative claims, according to court documents.

The settlement, if approved will resolve a majority of environmental claims stemming primarily from the company’s purchase of Millennium Chemicals Inc in 2004.

“Formation of the trust ... provides us with the means to liquidate these assets, most of which are legacy entities that are of no value to the reorganized company,” said Lyondell spokesman David Harpole. “Once the properties are transferred into the trust, we will have no liability.”

An additional $1.18 billion in claims against Lyondell, which filed for bankruptcy in January 2009, will be allowed, but will likely be paid at a “substantially reduced rate” reflecting the rate paid to other general unsecured creditors under bankruptcy law and Lyondell’s plan of reorganization, said the U.S. Attorney for the Southern District of New York, in a statement.

Government agencies had asserted various environmental claims and liabilities totaling about $5.5 billion.

TRUSTS

Lyondell plans to create two custodial trusts. The Environmental Custodial Trust will receive about $170 million to fund the cleanup and restoration of nine properties that will be transferred into the trust, including the Allied Paper Mill in Michigan, a Beaver Valley property in Pennsylvania and the Bully Hill Mine in California.

“The properties will be transferred to the government and upon the completion of the cleanup activities, those properties can be sold for the benefit of the trust,” Lyondell’s Harpole said.

Ten properties had originally been considered for the trust, but Port Arthur was removed on the expectation the property can be remediated and sold more rapidly outside of this process, Harpole said.

About $61 million of the total will go to the Environmental Protection Agency and to California to pay for administrative costs and the resolution of Californian claims.

The $80-million Millennium Custodial Trust will resolve the claims of 49 legal entities, formerly of the Millennium Chemicals chain of businesses, that are being eliminated from the Lyondell corporate structure under its reorganization.

Lyondell filed for bankruptcy in 2009 amid a sudden cash crisis under the weight of billions of dollars of debt and a recession-driven decline in global petrochemical demand.

The company filed a restructuring plan earlier this month, rejecting a takeover bid from India's Reliance Industries Ltd RELI.BO in favor of commitments from investors, including Apollo Management LP [APOLO.UL] and Access Industries.

The case is In re: Lyondell Chemical Co, U.S. Bankruptcy Court, Southern District of New York, No. 09-10023. (Reporting by Santosh Nadgir in Bangalore and Chelsea Emery in New York; editing by Derek Caney and Andre Grenon)

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