Lyondell rejects Reliance offer, files interim draft of plan changes

By Caroline Salls

Pittsburgh, March 8 - Lyondell Chemical Co. has rejected an offer from Reliance Industries Ltd. to acquire a controlling interest in the company, according to an interim draft of an amended plan of reorganization and disclosure statement filed Monday with the U.S. Bankruptcy Court for the Southern District of New York.

According to the disclosure statement draft, Reliance's proposal did not assure a higher overall value for LyondellBasell than the value the plan is based on, and it continued to provide Reliance with effective control over LyondellBasell, even if it owned only a minority position and did not pay a premium.

Lyondell said the Reliance offer also continued to rely on future profit opportunities to support any meaningful economic difference from the current plan in terms of value to be received by creditors, did not put any Reliance assets at risk and did not compensate the debtors' estates for delay and associated costs.

Equity agreement

As previously reported, the company requested court approval of an equity commitment agreement under which a group consisting of an affiliate of Apollo Management VII, LP, an affiliate of Access Industries and Ares Corporate Opportunities Fund III, LP has agreed to backstop the equity rights offering included in the amended plan by purchasing any shares of common stock not subscribed for by senior creditors.

Under the equity commitment agreement, the company has agreed to sell 263.9 million class B shares, of which 240.34 million of the shares, representing $2.55 billion, will be offering in the rights offering, and 23.56 million shares, representing $250 million, will be purchased by the sponsors at a subscription price of $10.61.

The backstop parties will then purchase any unsubscribed and excluded shares on the plan effective date at the same price.

Lyondell will pay a $69.75 million transaction fee to the sponsors.

Agreement changes

The amended plan reflects proposed changes to a lender litigation settlement.

Under the amended settlement:

• In return for receiving full releases from all allegations and causes of action raised in a committee lawsuit, the settling defendants have agreed to provide holders of general unsecured claims against obligor debtors, including 2015 noteholders if they meet specified conditions and vote in favor of the plan, with $300 million in cash funded through an additional equity rights offering and all of the proceeds of future prosecution of claims asserted in the committee lawsuit, $150 million in class A shares, a share of any net recoveries on non-settling defendant claims and State Law Avoidance Claims and a share of 90% of any net recoveries on assigned preference claims;

• Lyondell will make advances of up to $15 million to a litigation trust and of up to $20 million to a credit trust to pay for fees and costs incurred in connection with further litigation;

• The settling defendants will assign to the company the right to enforce all subordination and turnover provisions against the holders of 2015 notes. If the 2015 noteholders vote in favor of the plan, Lyondell will waive the subordination and turnover provisions and allow the noteholders to be treated as holders of obligor debtor general unsecured claims;

• The 2015 notes trustee and an informal noteholders group have agreed not to oppose an enforcement sale; and

• Additional settling parties have agreed to support confirmation of the plan.

Old settlement terms

Previously, under the settlement:

• A total of $300 million would have been distributed in cash to unsecured creditors of Lyondell's obligor debtors, Millennium Specialty Chemicals, Inc. and Millennium Petrochemicals, Inc.;

• The financing party defendants would have contributed their right to enforce all subordination and turnover provisions against the company's 2015 noteholders to its estate;

• An official committee of unsecured creditors lawsuit would survive, and the prosecution would be financed by Lyondell with up to $15 million of interest-free advances;

• The financing party defendants would release any claims to share in the $300 million payment and the net recoveries of the committee litigation against non-settling defendants;

• General unsecured creditors of obligor debtors and the Millennium entities would receive a certain cash recovery of $0.10 on the dollar under the settlement, plus the net recoveries of claims asserted against access group and director and officer defendants, which could result in recoveries exceeding $1 billion; and

• Bridge lenders would receive equity and warrants valued at less than $0.10 on the dollar and zero cash.

Proposed creditor treatment

Treatment of creditors under the draft amended plan would include:

• Holders of administrative expense claims, debtor-in-possession new money claims and DIP ABL claims, priority tax claims and priority non-tax claims will be paid in full in cash;

• Holders of secured tax claims will either be paid in full in cash on the plan effective date or retain the lien securing the claims and receive subsequent cash payments over a five-year period;

• Holders of DIP lender claims will receive new third-lien notes if they vote to accept the plan and cram down notes if they vote to reject the plan;

• Holders of senior secured claims will receive 100% of class A shares, subject to dilution, as well as the right to purchase rights offering class B shares and to participate in excess recoveries from creditor and litigation trusts;

• Holders of bridge loan claims will receive the number of class A shares that is equal to 5% of the combined class A and class B shares, less the number of class A shares at plan value equal to $75 million, which will be issued as part of settlement consideration, as well as a share of new warrants and the right to participate in excess trust recoveries;

• Other secured claims will be reinstated or paid in the ordinary course;

• Holders of general unsecured claims against non-schedule III obligor debtors will receive a share of $300 million in cash, class A shares equal to $150 million at plan value, any net recoveries on non-settling defendant claims, 90% of any net recoveries on assigned preference litigation trust claims and any net recoveries on State Law Avoidance Claims.

However, distributions to the holders of 2015 notes claims will be made only upon satisfaction of the 2015 notes conditions, and upon the failure of those conditions, any distributions otherwise intended for distribution to the holders of the 2015 notes will be made to the reorganized company;

• Holders of general unsecured claims against non-obligor debtors will be paid in full in cash after payment of administrative and priority claims;

• Holders of 2015 notes claims will receive a share of the settlement consideration being paid to the non-schedule III obligor debtors' general unsecured creditors if they vote to accept the plan and do not object to or appeal the lender litigation settlement and notes adversary proceeding, provided, however, that the portion of the settlement consideration consisting of class A shares will be distributed in its entirety to holders of the general unsecured claims, and provided further that creditors eligible to receive the settlement consideration will have the opportunity to elect to receive a greater portion of their settlement consideration in class A shares or cash.

These votes will be deemed as a direction to the 2015 notes trustee to dismiss the 2015 notes adversary proceeding;

• Holders of securities claims, subordinated claims, equity interests in LBFC, LyondellBasell AFGP Sarl and Millennium Specialty Chemicals, Inc. and the schedule III debtors will receive no distribution; and

• Holders of equity interests in other debtors will be unaffected by the plan.

A hearing on approval of the disclosure statement, equity commitment agreement and amended lender settlement is scheduled for Thursday.

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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