INSIGHT: Lyondell's path out of bankruptcy rests on Feb hearings

09 February 2010 16:21  [Source: ICIS news]

By Al Greenwood

Bankruptcy hearings to mull Lyondell exit planHOUSTON (ICIS news)--Lyondell Chemical hopes to meet several milestones this month in its plan to emerge from bankruptcy protection, with the court scheduled to hold three hearings about the company's reorganisation.

Lyondell's business becomes more precarious the longer it stays in bankruptcy, as customers, vendors and employees could lose confidence in the company.

Plus, each month in bankruptcy costs Lyondell more than $50m. If Lyondell spends another year in bankruptcy, it would cost the company more than $600m.

Lyondell has not released a timeline when it would emerge from bankruptcy protection - although one court document implies a mid-year exit, based on a 20 May deadline to have the court confirm its reorganisation plan.

Lyondell was among the US operations of LyondellBasell that filed for bankruptcy protection in January 2009. After Texaco, it was the largest chemical bankruptcy in US history.

In the US, Chapter 11 bankruptcy protection allows the company to remain in possession of its assets and operations while it reorganises. It is different from Chapter 7 bankruptcy, when a trustee is appointed, collects the company's assets and sells them off.

Of course, Lyondell never intended a Chapter 11 filing when it merged with Basell in December 2007. The deal created the fourth largest chemical company by sales and, by capacity, the world's largest producer of polyolefins and propylene oxide.

However, the merger closed the same month that the US economy fell into a recession. At the same time, it burdened the company with billions of dollars of debt before a credit crisis tightened financial markets. 

Since its filing, Lyondell has outlined a plan to emerge from bankruptcy protection. Under it, Lyondell plans to leave bankruptcy by exchanging some of its secured debt for Class A shares in the reorganised company.

It would also raise $2.8bn through the sale of Class B shares. Lyondell would use this money to fund its emergence from bankruptcy protection.

Lyondell would also pay $300m to partially settle a lawsuit connected to its merger with Basell.

In the lawsuit, a committee representing unsecured creditors alleged that key participants in the merger - lenders and company directors and executives - recklessly pursued the deal, ignoring warnings signs that it would likely fail.

The merged company barely made its first anniversary before Lyondell went bankrupt.

Lyondell says the lenders must be dismissed from the lawsuit before it can emerge from bankruptcy protection. Otherwise, if a trial takes place, it could last for weeks, costing Lyondell tens of millions of dollars.

Depending on the outcome, either the creditors or the lenders would appeal, dragging out the litigation further.

Lyondell's $300m settlement would only dismiss the lenders from the lawsuit. The creditor committee could still pursue its lawsuit against the directors and managers.

A hearing on the settlement was scheduled for 16 February.

On 22 February, the court is scheduled to hold two hearings regarding the equity offering and Lyondell's disclosure statement.

The disclosure statement describes Lyondell's reorganisation plan as well as the nature of its debts and its lawsuits.

The disclosure statement is crucial since creditors use the information to decide whether they will support or oppose the reorganisation plan.

So far, several groups of creditors have opposed the statement. Some say the statement is too vague. Others are using their objections to attack parts of Lyondell's reorganisation strategy.

One group said that the plan ignores recovery caps established for other creditors.

Another alleges that Lyondell is letting too many creditors tap into the proceeds of the creditor lawsuit. Lyondell needs to restrict any payout to creditors actually harmed by the merger.

Another concern is an apparent 25% decline in the value of Lyondell's business. Last year, Lyondell's financial advisors Duff & Phelps estimated that the company's value exceeded $19m.

Less than 12 months later, another firm - the Evercore Group - valued Lyondell at $14.5bn. The disclosure statement should explain the decline, according to creditors. 

The statement should also describe the unsolicited offer made by Reliance Industries, they said. Creditors should know more about the deal, since it may allow them to recover more of their claims.

Lyondell's reorganisation hinges on settling the creditor lawsuit. If the settlement is not approved, Lyondell will have to substantially revise its plan and disclosure statement, according to court documents.

The company could then spend even more time in bankruptcy.

For more on Lyondell visit ICIS company intelligence
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By: Al Greenwood
+1 713 525 2645



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