Lyondell committee lawsuit claims merger left company insolvent

By Caroline Salls

Pittsburgh, July 22 - Lyondell Chemical Co.'s official committee of unsecured creditors filed a fraudulent transfer lawsuit Wednesday in the U.S. Bankruptcy Court for the Southern District of New York in connection with Basell AF SCA's December 2007 acquisition of the company.

The committee said Basell, which has since been renamed LyondellBasell Industries AF SCA, operates under the ultimate control of billionaire industrialist Leonard Blavatnik.

"Blavatnik, in his personal quest to amass a global petrochemical giant with other people's money, used Basell, already highly leveraged, as a platform to acquire Lyondell in a cash-out merger of Lyondell shareholders," the committee said in the lawsuit.

The committee said the merger was funded entirely with debt, as every dollar of the $22 billion used to acquire Lyondell and fund the roughly $1 billion in transaction fees, was borrowed money.

The committee said Lyondell and its corporate parent and other major operating subsidiaries wound up in bankruptcy about one year after the merger.

"The debtors' inability to fund their operations, which led to the debtors' Chapter 11 filing on Jan. 6, 2009, was the entirely foreseeable and direct consequence of the merger, having left the debtors with unreasonably small capital for the continuation of their businesses, insolvent and unable to pay their debts as they became due," the committee said in the lawsuit.

"By November 2008, less than a year after the merger was consummated, LBI collapsed under the weight of the debt foisted upon it by the merger.

"Due to its overleveraged balance sheet and financial impairment, LBI was unable to fund its operations, to pay its creditors when due, and had no access to further borrowings."

Through the lawsuit, the committee said it is seeking avoidance of the obligations incurred by the debtors to both the banks that financed the merger and to a class of subsequent purchasers of those obligations, including obligations incurred to fund the roughly $12 billion merger consideration paid to Lyondell shareholders for their common stock at the time of the merger.

The committee is also seeking avoidance of $300 million in preferential transfers that Lyondell allegedly made to Access Industries Holdings LLC within 90 days of the bankruptcy filing date and subordination of all claims of the financing parties against the company for repayment of their merger financing obligations.

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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