Court Approves $8B Lyondell DIP Funding

The debtor financing signals the opening of a new market.
Stephen TaubMarch 2, 2009

A U.S. Bankruptcy Court approved terms of Lyondell Chemical’s $8 billion in debtor-in-possession financing, designed to enable the company to emerge from Chapter 11. The DIP package, perhaps the largest ever of its kind, also signals that another critical financing market is open for business.

The DIP financing includes two credit agreements: a $6.5-billion term loan comprising $3.25 billion in new loans and a $3.25 billion roll-up of existing loans, and a $1.54 billion asset-backed lending facility.

Lyondell, the U.S. subsidiary of LyondellBasell Industries, which makes polymers and petrochemicals and produces fuels, on Jan. 6 announced that its U.S. operations and one if its European holding companies had voluntarily filed to reorganize in bankruptcy proceedings.

On Jan. 8 the company received interim authorization to use up to $3.682 billion of its DIP funding, including 440 million euro for LyondellBasell’s non-U.S. entities.

The DIP lenders include a combination of banks and investment firms, such as hedge funds and private equity firms.

“These funds will support the uninterrupted operation of our businesses worldwide, giving confidence to our many suppliers and allowing us to continue serving the needs of our global customers,” said Volker Trautz, chief executive officer of LyondellBasell Industries, based in Rotterdam. “This final approval of our DIP credit agreements means that we can turn our full attention to the task of emerging from Chapter 11 protection with a new capital structure and a strengthened business platform.”

Bloomberg News noted that the terms of the DIP financing were changed after creditors raised concerns that the earlier terms could cause the company to default. The prior controversial terms included a one-year deadline and fees which could return as much as 20 percent to some lenders, according to the wire service.

“To be sure, this DIP has its warts,” Mark Ellenberg, a lawyer for Lyondell, told U.S. Bankruptcy Judge Robert Gerber in Manhattan. According to the report, Gerber said that he approved the loan despite his concerns about the one-year deadline, because it will give him flexibility about when he holds hearings. He citged the “terrible economic times” that have increased his case load. “If lenders don’t like it, they can file me a new plan,” the judge said.

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