BP Should Consider Bankruptcy, Restructuring Experts Say

29th Jun 2010 20:21

By Eric Morath Of DOW JONES DAILY BANKRUPTCY REVIEW Given the uncertain nature of the Gulf oil spill and potentially hundreds of billions of dollars in claims facing BP PLC (BP, BP.LN), a panel of bankruptcy experts Tuesday said seeking court protection from creditors could be a good option for the British oil company. Panelists participating in an American Bankruptcy Institute discussion agreed that a bankruptcy filing by BP, which is still flush with cash and assets, is far from a sure thing, but said that a court-supervised restructuring could be an effective way for the company to deal with potentially hundreds of thousands of claims tied to its still-gushing oil well off the Gulf Coast. "If they are going to be asked to pay an unlimited amount of civil claims, then I think the decision [to file] is pretty easy," said Peter S. Kaufman, who heads the restructuring practice at investment bank Gordian Group LLC. Bankruptcy could allow BP to create a trust that would separate liabilities tied to the oil spill from the rest of its operations and a mechanism to address claims made years from now. U.S. courts have developed a method for paying for current and future claims in such situations, said Judge Judith K. Fitzgerald of the U.S. Bankruptcy Court in Pittsburgh, who has dealt with several cases involving asbestos liabilities. Bankruptcy can "adjudicate claims more quickly and efficiently" than the alternative-dispute resolution process proposed as part of the $20 billion BP escrow fund established earlier this month, she said. Robert J. Keach, a bankruptcy attorney and shareholder with law firm Bernstein, Shur, Sawyer & Nelson PA, said such a restructuring would also provide a single forum for all disputes and "stop BP from facing hundreds of thousands of lawsuits in state courts." A BP spokeswoman declined to comment. Another panelist said a BP bankruptcy filing is a remote possibility. Loretta Cross, a managing partner with Grant Thornton LLP's restructuring practice, said BP, at the end of last year, had at least $100 billion more in assets than debts and could raise new debt, cut spending or sell oil reserves and other assets to raise cash to cover the claims. In court, BP could still be forced to pay the full amount of the claims, but it would also be subjecting itself to the cost and distraction of an international insolvency case, she said. However, once the crisis is over, BP may be a target for a takeover or a merger, Cross said. Several panelists suggested that, should BP decide to file, it is likely to do so in the U.K. and then seek a type of parallel protection in the U.S., called Chapter 15. This strategy could allow the company to protect its assets, halt litigation and consolidate claims in the U.S. while a British judge determines the amount of current claims and sets a future cap on BP's liabilities, Keach said. The assumption is that BP would get more favorable treatment in its home country, especially compared to a potential class-action lawsuit before a U.S. jury. Still, Chapter 15, which confers the benefits of the U.S. bankruptcy system to companies that seek creditor protection in foreign jurisdictions, isn't automatic. A bankruptcy judge must approve such a filing, which could be a tough sell if BP is seen as fleeing its obligations. The possibility of an international bankruptcy for BP has already caught the eye of some in Washington. U.S. Rep. John Conyers Jr. (D., Mich.) has introduced a bill that would prevent BP from taking advantage of Chapter 15. (Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.) -By Eric Morath, Dow Jones Daily Bankruptcy Review; 202-862-9279; [email protected] (END) Dow Jones Newswires June 29, 2010 15:21 ET (19:21 GMT)