Mega-sized DIP Fund Is Tapped

Lyondell Chemical wins a court OK to access the first $2 billion of an expected $8 billion in debtor-in-possession financing, plus a stop-gap loan ...
Stephen TaubJanuary 8, 2009

Bankrupt Lyondell Chemical has received court permission to tap more than $2 billion in interim debtor-in-possession financing and a “super emergency” $100 million loan to avoid liquidation, Bloomberg reported.

It is Lyondell’s first step toward securing a total of $8 billion in DIP financing, which, if approved, would rank among the largest DIP financings ever put together, according to The New York Times.

Of that total, $3.25 billion consists of new funding; $3.25 billion is a refinancing of existing senior secured credit facilities; and $1.515 billion is a replacement of existing working capital facilities, according to the company.

Reuters reported that Lyondell Chemical CFO Alan Bigman told the bankruptcy court that the company needed immediate funds to pay down more than $1 billion in debt due over the next few weeks, and had also run out of cash to fund operations.

U.S. Bankruptcy Judge Robert Gerber approved the company’s request to access $2.167 billion in DIP financing from a group of mostly pre-existing lenders. The separate $100 million emergency loan will be provided by Citibank to cover a two-day period, according to Reuters.

Meanwhile, the chemical company’s indirect parent, LyondellBasell Industries, announced that its U.S. operations and one of its European holding companies have filed to reorganize under Chapter 11.

“We have been working collaboratively with our creditors and our equity holder on a financial restructuring that reflects the realities of today’s market environment and positions us for the future,” said Lyondell CEO Volker Trautz.

According to Bloomberg, Appaloosa Management LP, in court documents, objected to the $8 billion loan, saying it and other holders of first-lien secured debt may not be protected by the plan to roll up pre-bankruptcy debt with the new loan.

Lyondell is not the only company to secure DIP financing in recent days. Last week, chicken processor Pilgrim’s Pride said it received final court approval for its $450 million facility, arranged by Bank of Montreal as lead agent.

Earlier in December, the company received interim approval to access up to $365 million of the $450 million pending a final hearing.

“The DIP financing facility, combined with cash flows generated from ongoing operations, allows the Company to continue its business operations on a normalized basis consistent with its pre-bankruptcy practices,” Pilgrim’s Pride stated.

Pilgrim’s Pride filed for Chapter 11 protection on December 1.

Earlier this week, VeraSun Energy Corp. said it received final approval for $196.6 million in DIP financing. It includes $93.6 million of incremental financing, $25 million of which was previously loaned to the company on an interim basis, to be provided by holders of VeraSun’s 9-7/8 percent senior secured notes due 2012.

The incremental financing will be available, subject to certain conditions, to fund operations at ethanol production facilities in Aurora, S.D. and Fort Dodge, Charles City and Hartley, Iowa and to maintain the idled Welcome, Minn., facility.

The balance of the financing consists of about $103 million used to refinance prepetition loans that had been made by the noteholders who participated in the DIP financing. The DIP financing matures on Nov. 3, 2009.

“The DIP financing will allow us to focus on running the business while undergoing the restructuring process as part of addressing VeraSun’s long-term future,” said Don Endres, VeraSun’s CEO.

VeraSun and 24 of its subsidiaries filed for Chapter 11 on October 31.