Lyondell's request to keep creditors at bay meets with stiff opposition; hearing to be continued

By Rebecca Melvin

New York, Feb. 13 - Lyondell Chemical Co.'s request for a preliminary injunction met with heated opposition from about 20 objectors, with possibly more on the way, causing the U.S. bankruptcy judge in charge of Friday's hearing to adjourn and schedule a conference call of the objecting creditors and Lyondell during the Feb. 16 week before resuming the hearing Feb. 23 or March 11.

Under bankruptcy law, judge Robert Gerber of the U.S. Bankruptcy Court for the Southern District of New York can postpone for only 10 days until Feb. 23 after granting Lyondell's temporary restraining order. But if he gets required consents, he can push it out further.

On Feb. 6, Gerber granted a temporary restraining order to Lyondell that keeps creditors from taking legal action against Lyondell's parent, LyondellBasell Industries AF SCA, and other non-debtors.

Specifically, the order protects LyondellBasell from attempts to accelerate guaranty claims and €500 million and $615 million 8 3/8% senior notes due 2015.

The preliminary injunction also keeps the guaranty claimants and noteholders from taking control of any LyondellBasell property or proceeds or continuing any related legal proceedings.

Objections from energy trading partners

Objectors, who were mostly energy trading partners, argued that not enforcing parent guaranties - a typical prerequisite of trade - would send the wrong message to trading and credit markets.

"Those guaranties are supposed to be worth something. If the guaranties are not worth anything, then that's going to have a big impact on gas trading and will immediately affect liquidity," counsel for CenterPoint Energy and Cokinos Natural Gas Co. told the court.

Both CenterPoint and Cokinos got parent guaranties about two months prior to the bankruptcy filing in January, counsel said.

Other objectors included Morgan Stanley Capital Group Inc., Targa Liquids Marketing and Trade, Koch Supply & Trading, GATX Corp., Deutsche Bank AG, Marathon Petroleum Co. LLC, Anadarko Energy Services Co., Houston Pipe Line Co. Ltd., Citgo Petroleum Corp., Dow Chemical Co., Columbus Hill Overseas Ltd., Nace Co., Liverpool LP, Elliott International LP, and a limited objection from Aspen Technology Inc.

The official committee of unsecured creditors aligned with Lyondell in favor of the temporary restraining order and preliminary injunction.

Objectors argued that Lyondell's request was rushed and that there was insufficient time to pull together information needed. One area that the judge wants fleshed out is whether the objectors have credit default swaps and other types of derivative contracts associated with Lyondell.

Objectors complained that they had not been given notice or invited to sit in on a deposition taken Thursday of Alan Bigman, LyondellBasell's chief financial officer.

"We were not aware of the secret Bigman deposition," one said.

The contents of that deposition were not disclosed and whether LyondellBasell has assets enough to cover the claims, or whether such claims would cause a default, was debated. Lyondell hasn't demonstrated that such extraordinary relief was necessary, they said.

One objector criticized Lyondell's piecemeal approach to the proceeding.

"We're here for two reasons: the debtor's choice to enter into a DIP that has default language in it and the parent company not willing to submit to this proceeding," said counsel for Koch Supply and Trading and Deutsche Bank.

The attorney pointed out that the debtor-in-possession financing presented to the court weeks earlier requires that the debtor stays current with debt obligations, and now the company is claiming that it needs an injunction. But "the DIP is a self-inflicted wound," the attorney said.

"These are sophisticated players. They knew about the guaranties, they knew about the notes. This issue was presumably pending before bankruptcy and it's inappropriate to come in with a TRO now. They could have done it weeks ago with full notice," the Deutsche Bank and Koch attorney said.

Deutsche Bank holds about 25% of the 2015 notes, the attorney said.

Judge eyes injunction

Lyondell counsel Vineet Bhatia of Susman Godfrey LLP said that the company preferred a one-year injunction so that it would have sufficient time to form a plan of reorganization to exit bankruptcy.

When judge Gerber suggested a six-month injunction that would end in August, Bhatia suggested Oct. 1 would be a better date in order to comply with deadlines and goals that the company is setting for itself.

Lyondell is a U.S. subsidiary of LyondellBasell, a Netherlands-based polymer, petrochemicals and fuels company. LyondellBasell's U.S. operations and one of its European holding companies filed for bankruptcy on Jan. 6. The Chapter 11 case number is 09-10023.

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