Lyondell DIP facility hotly contested; ABN Amro insists on term loan changes

By Caroline Salls

Pittsburgh, Feb. 24 - Lyondell Chemical Co. lender ABN Amro Bank NV objected to Lyondell's $8 billion debtor-in-possession facility, arguing that the facility needs to be "purged of [its] most problematic provisions," according to a Monday filing with the U.S. Bankruptcy Court for the Southern District of New York.

According to the objection, ABN and its affiliates hold $3.4 billion in outstanding claims against Lyondell and its affiliates, including $1.4 billion in loans extended under a senior pre-bankruptcy credit facility.

Under the interim DIP financing order and the DIP facility term sheet, ABN said it is listed as a lender on both the DIP term loan and ABL facility, and it has extended $153.4 million in new-money loans and about $129 million in ABL loans since Lyondell filed for bankruptcy.

ABN said it was one of the lenders that stepped forward at the interim DIP loan hearing and committed to fund a substantial part of the interim DIP financing based on the DIP Term Sheet. However, the bank said it expected the proposed final order to reflect the term sheet and interim order.

ABN, which committed to fund up to $326 million of the ABL DIP financing, said it has no objection to the proposed ABL credit agreement, which is consistent with the term sheet.

But the bank said the draft term loan agreement filed with the court and an amendment to the senior pre-bankruptcy facility that has not been filed with the court, have been drafted with provisions that were not included in the DIP term sheet and which, "if approved, would unnecessarily interfere with substantial rights of other lenders."

Lien rights in jeopardy

Specifically, ABN said the term loan agreement, as currently drafted, and the proposed amendment could jeopardize the roll-up DIP lenders' existing lien rights in non-U.S. collateral.

"Even worse, the proposed pre-petition amendment compounds this problem by adversely and disproportionately impacting the rights and potential remedies of the holders of "non-rolled up" claims under the [pre-bankruptcy credit agreement]," ABN said in the objection.

"In addition, other novel features of the term DIP documentation render it unacceptable to ABN, which as a member of the instructing group, must be satisfied with the DIP documentation's form and substance."

ABN said the roll-up DIP loans should continue to constitute loans outstanding under the pre-bankruptcy credit agreement.

However, the bank said the term loan DIP agent and some of the other DIP term loan lenders have decided that roll-up DIP loans must be administered under the term DIP credit agreement and that the pre-bankruptcy credit agreement should be amended to allow for administration.

ABN said this would result in the roll-up DIP lenders being treated as a separate tranche of lenders, giving them full voting rights on most DIP loan issues and new notes on account of the roll-up DIP loans.

"These features were not contemplated by the DIP term sheet, are quite novel, and are inconsistent with the roll-up DIP loans remaining as debt outstanding under the senior facility pre-petition credit agreement," ABN said in its objection.

Alternatives refused

Despite suggestions for alternative structures that would not pose such significant risks, ABN said the term loan agent has refused to make changes to the proposed facility.

The bank said it is willing and able to continue to participate in the DIP facility if the term loan and final order are purged of these problems and the pre-bankruptcy credit agreement is left intact.

In addition, ABN said it is willing to assign its new-money loans and commitments to another lender, provided that the proposed amendment and related terms are not approved or are modified to eliminate potential prejudice to the non-rollup lenders.

Committee objects

The company's official committee of unsecured creditors also objected to the DIP facility, calling the pricing of the facility "nothing short of confiscatory."

The committee said the all-in rate for new money under the DIP facility is about 20%, far in excess of Lyondell's current rate of return on its deployment of capital.

"Given that these high rates cause the debtors to lose money and enterprise value on every dollar they borrow, the debtors need to demonstrate that they have done everything possible to cut costs, minimize their borrowing needs, and reduce the size of the required DIP facility," the committee said in its objection.

"Such a showing has not been made."

The committee also raised concerns about financial covenants it claims "could turn out to be little more than tripwires for early events of default" and unjustified Chapter 11 case milestones included in the DIP agreement.

The committee said the DIP lenders are attempting to seize control of the company through the DIP facility.

Lyondell is a U.S. subsidiary of LyondellBasell, 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. The Chapter 11 case number is 09-10023.

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