LyondellBasell May File for Bankruptcy After Takeover Sours

 

By Pierre Paulden and Rob Delaney

Jan. 1 (Bloomberg) -- LyondellBasell Industries AF, the chemicals maker controlled by billionaire Len Blavatnik, may file for bankruptcy as a way to restructure debt that financed its $12.7 billion merger a year ago.

The company hired an executive to oversee a restructuring in case it seeks court protection and said its private-equity owners denied a request for a loan, according to a regulatory filing yesterday.

“We’re exploring all of our options,” Susan Moore, a spokeswoman for the Rotterdam-based company, said yesterday in an interview. “Filing Chapter 11 is one of those options.”

The chemicals maker is struggling with a collapse in home and auto sales that has depressed demand for everything from car bumpers to paint. LyondellBasell’s lenders face losses of more than 90 cents on the dollar as it joins Harrah’s Entertainment Inc., Realogy Corp. and GMAC LLC in seeking to restructure the debt-fueled buyouts of the past two years.

“These companies had the bad luck to add sizable amounts of leverage at the peak of the cycle,” said Christopher Garman, chief executive officer of Garman Research LLC in Orinda, California.

The company is considering court protection for certain units, according to two people with knowledge of the negotiations. They declined to be identified because the talks are private.

LyondellBasell’s $615 million of 8.375 percent notes due in 2015 were last quoted at 7 cents on the dollar, according to Trace, the Financial Industry Regulatory Authority’s bond-price system. The $225 million of 9.8 percent notes due in 2020 were priced at 25 cents on the dollar, Trace data show.

Court Approval

The chemicals maker hired Kevin McShea of turnaround specialist Alix Partners LLP to oversee any restructuring, according to yesterday’s Securities and Exchange Commission filing. Moore said McShea’s appointment isn’t effective unless the company files for bankruptcy.

The company said its Lyondell Chemicals Co. unit asked a finance affiliate of Access Group, Blavatnik’s private-equity firm, to extend it credit as part of a March loan agreement, but was denied. Lyondell said it disagreed with the basis for the denial.

‘Selective Default’

LyondellBasell is in “selective default” after postponing $280 million of interest payments and faces a “rapidly weakening liquidity position” with $26 billion of debt, Standard & Poor’s analysts led by Tobias Mock in Frankfurt wrote in a report this week. The company said it’s “not currently in default according to its agreements with its lenders.”

The company was formed by the December 2007 acquisition of Lyondell Chemical Co. by Basell AF, a takeover that created one of the world’s biggest plastics makers just as the auto industry was starting on its longest sales decline in 17 years.

U.S. auto sales dropped more than 30 percent in November, the industry’s 13th straight monthly decrease. New-home sales in November fell 2.9 percent to a 17-year low of 407,700, further depriving the company of demand for its products.

The deteriorating conditions contributed to the breakup of Apollo Management LP’s buyout of Huntsman Corp. Apollo agreed to buy Huntsman in July 2007 for $6.54 billion in cash and sought to cancel the transaction in June, saying it was no longer viable because profits wouldn’t meet previous forecasts and the company’s debts had increased.

Apollo agreed earlier this month to pay Huntsman $1 billion to cancel the acquisition.

Dow’s Deal

Kuwait earlier this week scrapped a plan to buy half of Dow Chemical Co.’s basic plastics unit, depriving the largest U.S. chemical maker of cash it planned to use to acquire Rohm & Haas Co. The Kuwaiti government had been under pressure from opposition lawmakers to scrap the deal, which they said was overpriced.

Goldman Sachs Group Inc., Merrill Lynch & Co., Citigroup Inc. and other banks arranged LyondellBasell’s debt financing, which includes $12.5 billion of first-lien bank loans, $5.5 billion of second-lien notes and loans and $2.5 billion of third-lien notes and loans, according to S&P.

The company’s U.S. denominated senior bank debt, which is repaid first in bankruptcy, fell from 60 cents on the dollar at the end of October to 42 cents on the dollar, according to London-based pricing service Markit Ltd.

Ed Canaday, a spokesman at New York-based Goldman Sachs, and Danielle Romero-Apsilos, a Citigroup spokeswoman in New York, declined to comment. Officials at Blavatnik’s Access Industries LLC in Moscow couldn’t be reached to comment.

LyondellBasell said in a regulatory filing earlier this week that it agreed with lenders to postpone paying $160 million in fees under a bridge-loan agreement and that it hired Evercore Partners and Alix Partners as advisers to help in restructuring the obligations.

S&P said LyondellBasell also postponed $120 million in interest due under notes issued by a finance unit. Before the downgrade to “selective default,” LyondellBasell was rated B-, six levels below investment grade, at S&P.

To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net; Rob Delaney in Toronto at robdelaney@bloomberg.net.

Last Updated: December 31, 2008 23:04 EST