Cost cuts, stock issue formed core of Lyondell bankruptcy exit

30 April 2010 21:12  [Source: ICIS news]

HOUSTON (ICIS news)--LyondellBasell shed expensive capacity, settled lawsuits and issued equity under a strategy that pulled the chemical major out of bankruptcy protection in just under 16 months.

The company emerged from bankruptcy protection on Friday.

LyondellBasell was one of the largest - and quickest - chemical bankruptcies in US history.

Solutia took roughly five years to leave bankruptcy protection. Chemtura and Tronox are still operating under Chapter 11 after filing last year. WR Grace had already spent more than eight years in bankruptcy.

Wellman and the TPC Group - formerly Texas Petrochemicals - spent less than a year in bankruptcy protection. However, neither company matched Lyondell's complexity.

At the time of its filing on 6 January 2009, LyondellBasell among the world's biggest independent chemical producers, with plants all over the world. The company was organised in Luxembourg, with its corporate headquarters in the Netherlands and its operational headquarters in the US.

Lyondell's reorganisation plan was not uncommon, as it offered some of its creditors equity in exchange for debt.

Nonetheless, several steps led up to Lyondell's exit from bankruptcy.

Early in 2009, Lyondell announced a plan to close 14 sites, eliminating 4,800 employees and contractors.

LyondellBasell simplified its North American structure by removing 90 legal entities.

In all, LyondellBasell removed $1bn (€760m) in costs from the company.

In addition, Lyondell overhauled operations at some of its plants. A cracker in Corpus Christi, Texas, switched to lighter feedstock, which costs less than heavier feeds.

Some of Lyondell's cost-cutting measures met challenges from other producers. In the course of its bankruptcy, Lyondell had evaluated several contracts and found it could extract millions of dollars in savings by renegotiating them, cancelling them or allowing them to expire.

However, some of LyondellBasell's moves drew opposition from producers, which the company later worked out in court.

Producers were not the only groups that challenged Lyondell's reorganisation. The company faced challenges from its unsecured creditors.

The creditors in the Lyondell bankruptcy filed a lawsuit connected to the company's merger with Basell.

The lawsuit accused the merger's lenders and the company's corporate officers of pursuing the merger to pocket millions in fees. The committee alleged that the merger drove Lyondell into Chapter 11 bankruptcy protection.

With the lenders entangled in the lawsuit, the litigation could last for months, threatening Lyondell's emergence from bankruptcy protection, the company said.

Lyondell successfully hashed out a settlement, which provided the creditors with $450m. In return, they dropped the lenders from the lawsuit.

Meanwhile, Indian major Reliance Industries made an offer to acquire a stake in the company, an offer later increased to nearly $15bn.

LyondellBasell rejected the offer, deciding that it was not lucrative enough to abandon its reorganisation plan.

Near the end of its reorganisation, Lyondell successfully proposed a $1.35bn settlement with environmental regulators, who wanted the company to pay more than $5bn in clean-up costs.

With the settlements and closed plants, Lyondell was set to leave bankruptcy protection after just short of 16 months.

($1 = €0.76)

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By: Al Greenwood
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