Mitigating potential environmental risk to facilitate asset sale

An energy company faced challenges selling its assets at an optimal price due to potential environmental liability. Marsh’s team of environmental specialists developed a tailored insurance program that provided the needed coverage to support a transaction.

The challenge

In preparation for the sale of the business, an energy generation company began to position themselves for a transaction. But the multi-billion-dollar transaction encountered some challenges due to the considerable financial and reputational risks associated with the company’s existing and historic coal generation and storage assets, which posed a roadblock to maximizing sale price.

The company was able to sell its fossil fuel assets by negotiating robust environmental indemnifications afforded from the individual buyers. However, the tail of liability associated with the coal generation business remained a significant obstacle in attracting potential bidders.

The solution

The team of specialists within Marsh’s Environmental Practice worked with the client to develop a one-of-a-kind risk transfer solution that allowed the energy company to backstop these liabilities. A bespoke pollution liability insurance program was designed to wrap around the underlying indemnification agreements from each individual site buyer.

The program insured against unknown and/or future losses at the sites as well as against known remedial and closure costs should the buyers fail to perform on their obligations.

A critical part of the program revolved around the ramifications of a potential change in law during the 10-year policy term. The evolving nature of the US Environmental Protection Agency’s Coal Combustion Residuals (CCR) Rule and the emerging contaminant Per- and Polyfluoroalkyl Substance (PFAS) could lead to new regulations that could translate into additional future cleanup costs at the sold locations. The energy company’s senior leaders were concerned that if the individual buyers were not able to perform the required remediation, the obligation to do so might revert to the company as a result of joint and several liability. The new insurance program was designed to mitigate this risk by transferring it to the insurance marketplace.

The result

The insurance program addressed the problematic legacy liabilities and alleviated the concern of the company’s prospective purchasers. Marsh’s solution helped to strengthen our client’s negotiating position with a potential purchaser, allowing them to drive an optimal deal in the market.