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AIG chaos may doom Bermite plans

Fed’s rescue may be a remedy

Posted: September 16, 2008 9:25 p.m.
Updated: November 18, 2008 5:00 a.m.
 

Cleanup at the 996-acre Whittaker-Bermite site could come to screeching halt if the company funding the project declares bankruptcy, as many fear.

In a bid to save financial markets and the economy from further turmoil, the U.S. government agreed Tuesday to provide an $85 billion emergency loan to rescue the huge insurer AIG.

Funding for the $300-million cleanup of the perchlorate-ridden site was put in place by two insurance companies, one of which is a wholly-owned subsidiary of the American International Group, AIG, which found itself on the brink of bankruptcy Tuesday.

The subsidiary is the American International Specialty Lines Insurance Company, or AISLIC, which put up $225 million of the Bermite site cleanup money.

"We're hoping the funds are set aside to assure the remediation of that property," said Carl Newton, Santa Clarita's city attorney. "If a bankruptcy is declared, a trustee would be appointed and that trustee would then administer all the claims against the company, assessing whatever assets exist."

The funds devoted to the cleanup are assets of AISLIC, he said.

If AIG declares bankruptcy as the 158-year-old Lehman Brothers Holdings, Inc., did Monday, AISLIC money earmarked for the Whittaker-Bermite cleanup would be handled by a court-appointed bankruptcy trustee.
Calls made to AIG for comment were not returned Tuesday.

Generally, all assets are put into a bankruptcy estate from which numerous creditors would try to collect, Newton said.
Brian Folsom, engineering and operations manager of the Castaic Lake Water Agency, said the agency would still be committed to cleaning up site.

"CLWA remains committed to seeing that the underground aquifer is cleaned of contaminants and the groundwater wells that are currently out of service are placed back in service as soon as feasible," he said.

"In the event that funding from the insurance companies is not available, replacement funding would have to be secured," he added. "This would require discussions between CLWA, the City of Santa Clarita, Whitaker-Bermite, etc. It would also depend on the decision of the bankruptcy court involved. The outcome is not known at this time."
Paul Brotzman, director of community development for Santa Clarita, was assured by city lawyers that the money held by a subsidiary such as AISLIC would "be treated separately" and, as a result, left in place.

Regardless, the city would take an active role in any proceedings that affect the cleanup.

"If the insurance company declares bankruptcy, what it means for the city is that we need to continue to take an active role in following each of the actions that occur," he said. "If for some reason the company goes bankrupt we need to be engaged in the bankruptcy process."

Regardless of funding, the cleanup remains the responsibility of Whittaker Corporation, he said.

Whittaker-Bermite manufactured and tested munitions for decades on the Saugus property, which is contaminated with perchlorate. The rocket fuel byproduct has been linked to human thyroid problems.

Several lifesaving moves were considered Tuesday in New York to keep AIG from bankruptcy.

A collapse of AIG would force Wall Street to untangle the complex credit derivatives markets and send the market scrambling to figure out who owes what to whom - or even who owns what.

"Regulators knew that if Lehman went down, the world wouldn't end," money manager Michael Lewitt wrote in an op-ed column Tuesday in The New York Times. "But Wall Street isn't remotely prepared for the inestimable damage the financial system would suffer if AIG collapsed."

As AIG teetered, central bankers around the globe scrambled to revive credit markets. The Fed injected $70 billion into the American financial system. The European Central Bank pumped one-day financing of nearly $100 billion into the 15-nation zone. The Bank of Japan added $24 billion, and England's central bank almost $36 billion.

The Department of Toxic Substance Control remains the lead agency overseeing the Bermite cleanup.

"DTSC sees Whittaker-Bermite as the responsible party and, as such, DTSC will continue to pursue the cleanup," said official Claudia Loomis. "Ensuring the cleanup is performed in a timely expeditious manner."

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