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January 21, 2010

Lyondell Creditors Fail to End Company’s Control of Bankruptcy

Jan. 20 (Bloomberg) -- Lyondell Chemical Co.’s creditors committee failed to end the company’s control of its bankruptcy case after a lawyer said a rival bid from Reliance Industries Ltd. may be more attractive.

U.S. Bankruptcy Judge Robert Gerber in Manhattan ruled yesterday that Lyondell will retain the exclusive right to file its own reorganization plan until April 15. While the order prevents parties in the case from filing a competing proposal, they can still ask to shorten Lyondell’s exclusivity, Gerber said.

A financial backer has been raising its offer for the Houston-based chemical maker, Joseph Ryan, an attorney for creditors with Brown Rudnick, told Gerber. Reliance, India’s biggest company, said Nov. 23 that it made a preliminary all- cash offer for Lyondell’s Netherlands-based parent company, LyondellBasell Industries AF.

“We have another plan sponsor in the wings who keeps increasing their offer, with a proposal that, in many ways, on its face is superior than the one being offered in our current plan,” Ryan said.

Gerber yesterday rejected the creditors’ request for a probe into how Lyondell is evaluating Reliance’s bid. Gerber said an examiner’s prior report resolved most of his concerns about a conflict of interest in the case. Creditors had sought to expand the report in court papers filed Jan. 14.

“The examiner previously concluded that we have acted fairly and in accordance with our fiduciary duties and this was again affirmed in court,” David Harpole, a spokesman for LyondellBasell, said in an e-mailed statement. “We continue to work with all parties to design a confirmable plan of reorganization.”

Lender Payments

Gerber also denied creditors’ bid to end “adequate protection” payments to senior secured lenders. The payments, which protect lenders’ collateral while the company is in bankruptcy, total about $500 million in the case so far, according to court documents. If the payments stop, Lyondell could be considered in default on its $8 billion bankruptcy loan, leading to distracting and costly litigation, Gerber said.

The payments were based on an initial $19.2 billion valuation for Lyondell, which is valued at $14.5 billion under the current Chapter 11 plan. Gerber said the disparity in the company’s net worth cause him to question whether he got a “garbage evaluation” in an earlier Duff & Phelps report.

“The idea that the estate has lost half a billion causes me to at least wonder that I got a bad valuation at the outset of this case. A really bad valuation,” Gerber said.

Access Control

Creditors requested the examiner probe and a halt to the protection payments after alleging that Len Blavatnik’s Access Industries Holding Inc. had too much control over Lyondell’s board and had worked with secured lenders in its bankruptcy.

The allegations were raised in a lawsuit against secured lenders, which the company settled on the creditors’ behalf. Creditors are challenging the settlement, and Gerber is set to consider its approval on Feb. 11.

Under Lyondell’s current outline of a Chapter 11 plan, Access, Apollo Management LP and Ares Corporate Opportunity Fund III are backing a plan that includes a rights offering giving them equity in the new company. Reliance’s bid would rival that investment.

Harpole declined to comment on Reliance’s offer.

Lyondell was formed in a 2007 deal financed with $22 billion in debt in which it was bought by Basell AF, a unit of Blavatnik’s Access Industries. Creditors have alleged the buyout crippled one of the world’s largest polymer, petrochemical and fuel companies, causing it to seek bankruptcy.

Bank of New York

Bank of New York, a Lyondell creditor, separately reached a settlement with the company that will allow its bonds to be treated the same as similar debt, Glenn Siegel, a lawyer for the bank, told Gerber yesterday. Bank of New York owns $325 million in notes due 2020, known as “Arco notes,” and $150 million in notes due 2026, known as “Equistar notes.” Both are named after Lyondell affiliates.

“The Arco and Equistar noteholders shall receive identical plan consideration and treatment,” Siegel said. The noteholders won’t have to bear the costs of litigation against secured lenders, who may have their claims reduced by the amount of some payments already received in the case, he said.

The accord requires court approval.

The main case is In re Lyondell Chemical Co., 09-10023, and the adversary case is 09-01375, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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