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Chemical Giant LyondellBasell Mulls Bankruptcy

THE WALL STREET JOURNAL

DECEMBER 31, 2008

LyondellBasell Industries, the world’s third-largest independent chemical company, told lenders on Monday it is considering filing for bankruptcy protection amid plunging sales and a cash crunch, people familiar with the matter said.

LyondellBasell, which is based in the Netherlands and has large U.S. operations, has hired bankruptcy counsel and told lenders it is trying to line up as much as $2 billion in bankruptcy financing, these people say. A Chapter 11 filing may be imminent, they say.

[LyondellBasell, which has large U.S. operations, has told lenders it is trying to line up as much as $2 billion in bankruptcy financing.]
Bloomberg News. /Landov

LyondellBasell, which has large U.S. operations, has told lenders it is trying to line up as much as $2 billion in bankruptcy financing.

The chemicals industry has been battered over the past year, first by high prices for oil and natural gas, which are key components of plastics and other chemicals, then by the weak economy, which has driven down demand for products. Companies have been forced to slash budgets and shut down production. On Sunday, Dow Chemical Co. announced that Kuwait had pulled out of multibillion-dollar joint venture to produce commodity chemicals. (Please see related article on page B3.)

LyondellBasell, which is privately held, was created last year when Dutch chemical company Basell International Holdings BV paid $12.7 billion to buy Houston-based Lyondell Chemical Co. Basell paid $48 a share, a premium of about 20%. The resulting debt burden is proving too heavy amid a decline in sales. The company has annual sales of about $54 billion and 16,000 employees, according to its Web site.

Basell is a division of Access Industries, founded by Russian-born industrialist Len Blavatnik. New York-based Access has hired the law firm of Skadden, Arps, Slate, Meagher & Flom LLP as bankruptcy adviser. LyondellBasell has hired New York law firm Cadwalader, Wickersham & Taft LLP as bankruptcy counsel, people familiar with the matter say. It has also retained Evercore Partners Inc. as financial adviser, and AlixPartners LLC to assist in the restructuring. The latter three firms declined to comment or did not return calls.

To be sure, hiring bankruptcy advisers does not always mean a company will seek Chapter 11 protection. In some cases, advisers help clients hammer out restructuring agreements outside of court.

On Tuesday, LyondellBasell spokeswoman Susan Moore declined to comment on whether the company had reached an agreement with lenders or whether it had hired bankruptcy counsel. “It’s our policy not to comment on rumors,” she said.

The company’s situation has deteriorated rapidly over the past three months as global industrial production has declined. Falling oil and gas prices have helped LyondellBasell by reducing its costs. But they’ve made it harder for it to borrow because its credit is based, in part, on the value of its inventory, which has also declined. As chemical and commodity prices fall, the company has been forced to pay back lenders to remain in compliance on loans, say several people familiar with the company.

Earlier this month, LyondellBasell said subsidiary Equistar Chemicals LP would temporarily idle a chemicals plant in Chocolate Bayou, Texas, “due to declining market and economic conditions.”

[crisis of confidence]

“Demand for petrochemical derivatives continues to be very weak,” Vaughn Deasy, vice president of base chemicals for LyondellBasell, said at the time.

The extent of the company’s current problems was spelled out in the call with lenders on Monday, and jarred many of them, people familiar with the matter say.

LyondellBasell’s bonds have been trading at distressed levels in recent months. A $100 million unsecured bond issue trades at about 30 cents on the dollar, a sign that investors are concerned about default. Another $225 million issue trades at around 23 cents, according to the investment banking firm of Robert W. Baird & Co.

Last year’s merger, which closed in December, made LyondellBasell one of the world’s largest chemical companies, but it saddled it with a heavy debt load. Some analysts questioned the deal. “This really isn’t a good time to buy. You should be waiting a couple more years for assets to get cheap,” HSBC analyst Hassan Ahmed said when the deal was announced that July.

On Tuesday, two major ratings firms downgraded LyondellBasell’s debt. Standard & Poor’s declared the company in “selective default” after LyondellBasell disclosed it was working with lenders to postpone $160 million of payments due earlier this month. S&P said that while the lenders had agreed to a delay, “the obligation was not paid as originally scheduled. This is a default in our opinion.”

In a statement, LyondellBasell said S&P’s downgrade “should not be misinterpreted to suggest that LyondellBasell is currently in default of its bank agreements.”

In a regulatory filing Monday, LyondellBasell said lenders had agreed to postpone $160 million in payments to Dec. 29, from Dec. 19, and that it was “working collaboratively with lenders” on a further extension. The company also said it had hired Evercore Partners “to assist in the restructuring process.”

LyondellBasell’s largest lenders include Merrill Lynch & Co. and Goldman Sachs Group Inc. Spokesmen for the two firms declined to comment.

Mr. Blavatnik, who immigrated to the U.S. from the Soviet Union in 1978 and became a U.S. citizen in 1981, largely made his fortune in his native land. He made money in real estate in the U.S., then returned to Russia in the early 1990s, joining a new class of entrepreneurs. Navigating the economic transformation of the country, they snapped up assets privatized by the state on the cheap.

Mr. Blavatnik became a major holder in the profitable aluminum business. He owned a chunk of Sual, an aluminum company that recently merged with two other companies to form United Co. Rusal, one of the largest producers of the metal in the world. He also invested in TNK, a big oil company cobbled together by him and two other tycoons. In 2003, they sold half of it to BPPLC in an $8 billion deal.

Mr. Blavatnik moved to London several years ago and works from an elegant office on Kensington Park Row, a favorite location for Russian billionaires. Access said he wasn’t available for comment.

Skadden bankruptcy lawyer Jay Goffman said, “Access Industries has been fully supportive of the company during this difficult period and will continue doing everything we reasonably can to support it.”

Through Access Industries, Mr. Blavatnik has stakes in media and telecom companies. He sits on the board of Warner Music Group Corp., in which Access holds a 2.4% stake.

He bought Basell, a Dutch joint-venture between German chemicals-maker BASF AG and Royal Dutch Shell PLC, for €4.4 billion, or $6.06 billion, in 2005, the largest leveraged-buyout deal in the chemical industry at that time.

Write to Jeffrey McCracken at [email protected] and Ben Casselman at[email protected]

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