Lyondell judge orders examiner to investigate rights offering, DIP facility, litigation reserve

New York, Oct. 28 - The judge overseeing Lyondell Chemical Co.'s Chapter 11 proceedings directed the U.S. Trustee to appoint an examiner, as requested by the official committee of unsecured creditors.

The examiner will determine whether the case debtors have "done anything out of the ordinary in connection with their decisions regarding" the selection of a sponsor for the equity rights offering that is part of the planned exit financing, whether or not to get new debtor-in-possession facility financing; and proposing a litigation reserve in the plan of reorganization.

In this case, "out of the ordinary" will mean "solely by reason of a conflict of interest or other breach of fiduciary duty or by acting in bad faith," according to judge Robert Gerber's order, filed Wednesday with the U.S. Bankruptcy Court for the Southern District of New York.

The examiner will also be authorized to comment on - but not investigate - whether any party used leveraged in the case to put pressure on the company over any proposal in the reorganization plan.

The examiner is to be someone who is "financially sophisticated and has substantial experience in chapter 11 mega-cases, in corporate finance, and has familiarity with the practice in the bankruptcy community in connection with DIP financings, exit financings, and equity rights offerings."

Gerber gave the examiner 30 days and a budget of $200,000 to prepare the report.

The report will initially be confidential, with the various parties involved then to report back on what can be made public.

Gerber also directed that the examiner neither interfere with nor delay the confirmation process.

In its motion request an examiner, the unsecured creditors said they wanted an investigation of the company's "selection of a conflicted rights offering sponsor," its refusal to refinance its debtor-in-possession facility and its refusal to propose a reorganization plan that includes a reserve for unsecured creditors pending resolution of a committee lawsuit.

According to the motion, "the debtors' prepetition secured lenders, in concert with Leonard Blavatnik and entities controlled by him, orchestrated the busted leverage buyout that culminated in these bankruptcy proceedings."

As previously reported, the committee has filed a lawsuit in an attempt to avoid the lenders claims and liens.

The committee said Lyondell has now selected the lender defendants to provide DIP financing even though the lenders are using that vehicle to attempt to stifle the lawsuit.

In addition, the committee said the company has chosen Blavatnik to serve as the principle rights offering sponsor through Access Industries, Inc.

"The debtors have surrendered their impartiality and independence in favor of allowing the outcome and timing of these cases to be dictated by the prepetition wrongdoers who are defendants in the committee action," the committee said in the motion.

The committee said Lyondell is forced to reorganize quickly because of the impending maturity of the DIP facility imposed by the lawsuit defendants.

Lyondell is a U.S. subsidiary of LyondellBasell Industries AF SCA, a Netherlands-based polymer, petrochemicals and fuels company. LyondellBasell's U.S. operations and one of its European holding companies filed for bankruptcy on Jan. 6, 2009. The Chapter 11 case number is 09-10023.

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