LyondellBasell cut net debt to nearly zero in third quarter, eyes better rates for bonds

By Paul Deckelman

New York, Nov. 17 - LyondellBasell Industries NV, which earlier this month paid a surprise visit to the junk bond market and came away with another $1 billion in its coffers - has spent the past year and a half since its U.S. operations reorganized improving its cash flow and cash balance while trimming debt - to the point where billions of dollars of net debt had been slashed to around the zero level.

"In the past year and a half since we have emerged, the numbers tell the story pretty clearly," the Rotterdam, Netherlands-based chemical company's vice president for strategic planning and transactions, Sergey Vasnetsov, told investors at the Morgan Stanley Global Chemicals Conference on Thursday in New York.

"EBITDA improved very significantly over this period of time, our cash balance has grown, while net debt went from $4.5 billion to essentially zero by the third quarter, and in the meantime, free cash flow of the company was also quite strong, even after taking care of capex, taking care of our assets and some growth opportunities."

Balance sheet better

As of the end of the third quarter on Sept. 30, LyondellBasell's balance sheet showed $5.609 billion of cash and cash equivalents, plus $292 million of restricted cash - more than offsetting the company's long-term debt of $5.782 billion and $49 million of short-term debt.

The company's slightly net cash position at the end of the quarter compared with net debt of over $1 billion at the end of the second quarter on June 30, when debt totaled $5.863 billion - $5.813 billion of it long term and $50 million short-term - but cash and equivalents was only $4.687 billion, plus $250 million of restricted cash.

That net-cash position stood in even sharper contrast to the $4.525 billion of net debt it showed on April 30, 2010, the day before the U.S. operations emerged from Chapter 11, where they had been since January of 2009.

At its emergence, total debt stood at $7.3 billion, although that was well down from a bloated $20 billion-plus pre-petition, and almost all the remaining debt had been converted from immediately due short-term debt into longer-term debt, giving the company time to manage its obligations. Cash at emergence stood at less than $3 billion, or only less than half the most recent balance.

Besides bringing total debt down by an additional $1.4 billion since the Chapter 11 emergence, the "significant restructuring of capital" that Vasnetsov touted also enabled the company to eliminate restrictive covenants on its unsecured debt.

Still wheeling and dealing

Earlier this month, LyondellBasell floated a $1 billion junk bond issue to help pay for a special equity dividend of up to $2.6 billion. The quickly marketed drive-by issue priced on Nov. 4, with the 10-year paper pricing at par to yield 6%, which the executive called "a quite effective yield."

He told the conference attendees: "Our credit rating ratio suggests that we should be able to issue bonds at even more attractive terms, and hopefully we'll see this in the future."

The period since the end of the third quarter has been a busy one, financially speaking, for LyondellBasell. Besides the $1 billion bond deal, the company began a tender offer on Oct. 20 for up to $1.47 billion of its outstanding $1.822 billion and €303.75 million of 8% senior secured notes due 2017 and for up to $1.318 billion of its outstanding $2.637 billion of 11% senior secured notes due 2018.

The offer, slated to continue through Nov. 21, had been fully subscribed by the early tender deadline on Nov. 2, with holders of over 98% of the 8% notes and over 99% of the 11% notes having tendered their bonds, which will be acquired by the company on a pro-rata basis.

In describing the financial and operational progress the world's third-largest independent chemical manufacturer had made in the last 18 months, Vasnetsov said: "We have accomplished the things that were necessary for the company - emerging from bankruptcy early in '10, building up our balance sheet, building up and continuing to build up our track record as an operationally excellent company - safe, reliable and efficient.

"Now we're looking to our future opportunities, which would be to continue to generate free cash flow, which is the first and foremost task for us, and secondly, of course, continue to be good stewards of capital and allocate free cash to several appropriate channels, depending on what opportunities we see in the marketplace, and our ability to execute upon them," he added.

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