Lyondell DIP objectors grill CFO on circumstances surrounding loan agreement

By Rebecca Melvin

New York, Feb. 25 - An objector to final approval of Lyondell Chemical Co.'s $8 billion debtor-in-possession credit agreement sought to expose the possibility that the terms of the agreement were so onerous as to potentially throw control of the company into the hands of its DIP lenders.

Counsel for the official creditors committee, William Dolan of Brown Rudnick, questioned Alan Bigman, LyondellBasell's chief financial officer, Wednesday as to the reasons behind the credit agreement's short, one-year maturity date of Dec. 15, 2009.

The discussion was part of day one of a hearing for final approval of the DIP facility at the U.S. Bankruptcy Court for the Southern District of New York. The hearing was slated to continue Thursday.

Dolan also questioned Bigman about the involvement of Leonard Blavatnik, chairman of the board of Lyondell's Netherlands-based parent, LyondellBasell Industries AF SCA, known as LBIAF, a non-debtor in these cases.

Access Industries, which was at one point, but is now no longer a DIP lender, was implicated as the source of the one-year maturity date.

While the borrower had asked for a two-year maturity, Dolan told the court, the short date was imposed; and it could be used as a device to assert control over a borrower.

"It could be a way to assert control," Bigman admitted.

Dolan also pointed to problems with the milestones set forth in the credit agreement, which are geared to the Dec. 15 date. There is an Aug. 15 deadline for delivering a draft reorganization plan and disclosure statement to lenders; a Sept. 15 deadline for filing those documents with the court; an Oct. 15 deadline for obtaining approval from the bankruptcy court; and a Dec. 1 deadline for plan confirmation hearing.

"But we know of no case of this magnitude ever emerging in less than 10 months," Dolan said.

The DIP facility consists of $1.54 billion of revolving credit, secured by liens of receivables and inventory, or the ABL facility, which can be expanded to $2 billion; $3.25 billion of available term loans, secured by priming liens; and a modified dollar-for-dollar roll-up of $3.25 billion in existing senior secured debt, which will be secured by a priming lien junior to the liens granted to lenders under the new revolving and term loans and which will be subject to restructuring under a plan of reorganization.

Deleveraging at issue

Parties pored over financials as part of the contested hearing. They showed that Lyondell operations are making a significant loss at this point, but Bigman said that the reorganization is more about deleveraging than operations.

Nevertheless Lyondell, which was a $45 billion international chemical maker employing more than 20,000 people as of Dec. 15, 2008, plans to reduce head count and idle and close plants.

Lyondell's European affiliates, which are not in bankruptcy, were brought up and Bigman said that due to the high debt levels of those entities, they might be forced to come into the bankruptcy case.

He said the number of those entities was probably less than five.

Global economic slowdown and the volatility of hydro carbon costs were cited as causes of the company's hard times.

Bigman said he couldn't project operating rates and margins going forward with any certainty because of the volatility of petrochemical feed stocks.

He was certain, however, that the DIP loan was essential for the company's survival, and it has already been used it to meet obligations in January.

When asked if he considered renegotiating terms of the DIP, he said: "The DIP terms were heavily negotiated and we weren't returning to major terms on the DIP."

The competence of senior management was also brought into the spot light and Bigman was forced to admit: "I certainly think that we need to look at the management team and consider whether changes need to be made."

Outflows exceed inflows

Intercompany net outflows for the five-week period covering January from Lyondell Chemical, formerly Arco, and affiliate Equistar Chemicals far exceeded monies coming in, counsel for Bank of New York Mellon, as indenture trustee, pointed out.

Money going out from Lyondell Chemical LLC for the period was $1.815 billion and money coming in was $576 million.

Bigman pointed out that DIP loan inflow was $4 billion, keeping the company cash flow positive.

Bank of New York is trustee covering $325 million of unsecured Arco notes and $150 million of unsecured Equistar notes.

"Even though the debtors acknowledge in the DIP motion that despite the 2007 transaction, the Arco noteholders and the Equistar noteholders are oversecured, the relief sought effectively destroys the value of their liens, the new indebtedness almost exclusively benefits other affiliated corporate entities (debtors and non-debtors) implicitly ignoring the separate legal status of LLC. Equistar, Millennium, and Houston Refining," Bank of New York's objection stated.

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.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.