Lyondell indenture trustees ask court to force DIP refinancing

By Caroline Salls

Pittsburgh, Sept. 15 - Lyondell Chemical Co. indenture trustees Bank of New York Mellon and the Bank of New York Mellon Trust Co. asked the U.S. Bankruptcy Court for the Southern District of New York to force the company to refinance its debtor-in-possession facility, according to a Monday court filing.

According to the motion, the DIP facility matures on Dec. 15, just two weeks after the lawsuit filed by the company's official committee of unsecured creditors in connection with the 2007 acquisition of Lyondell Chemical by Basell AF SCA goes to trial.

The indenture trustees called this lawsuit the "single most important creditor dispute in these cases."

The banks said extraordinarily complex issues must be litigated in that two-week period because confirmation of the company's plan of reorganization will be inevitably tied to the DIP facility maturity date.

However, given that Lyondell has repeatedly told the court that its liquidity is severely constrained and it would not survive as a going concern absent financing, the trustees said "it is highly likely, if not inevitable, that the resolution of the litigation and therefore the allocation of value between creditors, will be unduly and needlessly influenced by the tightening of the debtors' purse strings by the DIP lenders."

The banks said many of the DIP facility lenders are defendants in the committee lawsuit.

In addition, the banks said Lyondell's primary shareholder, who is also a defendant in the committee lawsuit, continues to have its representatives on the board.

Because of the primary shareholder's interests as a defendant, new-money investor and likely owner of pre-bankruptcy debt, the banks said the debtors "are remarkably indifferent to the potential benefits of easing the time constraints under the current DIP facility and reducing the cost of such DIP financing."

"Thus, the DIP lenders and the debtors' primary shareholder have a tremendous incentive to use the self-imposed artificial deadline of the DIP maturity date to exercise a stranglehold over any chance of a just result to the committee action," the trustees said in the motion.

"Simply put, neither the DIP lenders nor [primary shareholder] Access [has] any incentive to extend the DIP facility or [to] seek alternative financing because that might allow the committee to prove its case."

A hearing is scheduled for Oct. 7.

Lyondell is a U.S. subsidiary of LyondellBasell Industries AF SCA, 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, 2009. The Chapter 11 case number is 09-10023.

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