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BP bankruptcy unlikely but possible if oil spill spreads

With pockets as deep as BP's — its assets are worth more than $260 billion — the possibility that it might be forced to seek bankruptcy protection because of the Gulf of Mexico oil spill is considered remote by many industry experts.

But what if the company's plans to contain the spill continue to be unsuccessful? If that were to occur, the worst-case projections of some experts, if they came to pass, would strain the ability of any company to pay, said Robin K. Craig, associate dean for environmental programs at the Florida State University College of Law.

Craig said that if the oil hit the Gulf Stream and was carried by currents to East Coast states, Cuba and other Caribbean nations, and possibly even Britain, lawsuits could quickly mount to levels even BP could not handle.

"My bet is that BP will finally go bankrupt from the tort liability and the environmental liability," she said. "Hypothetically, a bluefin tuna farmer in the Mediterranean could end up with a claim against BP."

Even those who find it unlikely that BP will seek bankruptcy protection believe it is likely that the company has to at least consider it a possibility, in light of spiraling environmental costs, economic claims and the unpredictability of American juries.

A previously unreleased memorandum by the Congressional Research Service outlined ways that a bankruptcy filing by BP could disrupt the cleanup and compensation.

The letter, prepared in response to questions from Sen. Thomas R. Carper, D-Del., stated that economic and environmental claims would fall into line behind the company's secured creditors as "nonpriority, unsecured claims," leaving much of the continuing cost of cleanup, in all likelihood, to the federal government. With a judge's approval, the company's assets could even be sold and its liabilities left behind.

Government officials are pursuing contingency plans as well. The Justice Department sent a letter to BP last month requesting at least 30 days' notice of "any planned or contemplated events going forward that may involve substantial transfers of cash or other corporate assets outside of the ordinary course of business" by BP — the kinds of actions that might precede a bankruptcy filing.

The House of Representatives has passed a bill, introduced by Rep. John Conyers Jr., D-Mich., that would limit BP's options in bankruptcy and bolster the rights of those with economic claims.

Under the proposed law, the sale of "significant" assets in bankruptcy related to a maritime incident could take place only with the approval of at least half of those holding claims for economic loss, or a determination by a judge that the company would still be able to pay claims.

Many experts who have looked at the financial strength of BP said its ability to handle enormous liability claims should not be underestimated.

Kenneth R. Feinberg, the administrator of the $20 billion fund to address economic losses from the spill, recently said that a BP bankruptcy would be a "disaster for the people in the gulf" and is "not an option."

BP bankruptcy unlikely but possible if oil spill spreads 07/12/10 [Last modified: Monday, July 12, 2010 7:29pm]
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