Feb. 12 (Bloomberg) -- Lyondell Chemical Co., the bankrupt oil refiner and chemical producer, shouldn’t be able to bar creditors from collecting debts from its foreign, non-bankrupt units, Morgan Stanley Capital Group Inc. and Dow Chemical Co. said.

Morgan Stanley Capital said in Manhattan bankruptcy court today that Lyondell has “failed to establish circumstances” to justify an injunction that would bar creditors from taking actions against Lyondell’s Netherlands-based parent LyondellBasell Industries AF SCA, known as LBIAF.

Lyondell’s U.S. unit seeks to bar two separate groups -- holders of notes due 2015 in a Luxembourg affiliate, who are owed $618 million, and a group of companies, including ConocoPhillips and Dow Chemical Co., that seek $131 million for transactions guaranteed by Lyondell.

Lyondell has said the acts might force its European units and holding company LBIAF into bankruptcy, ruining its own chances of reorganizing in the U.S. U.S. Bankruptcy Judge Robert Gerber will consider Lyondell’s request for a permanent injunction Feb.13.

LBIAF “should not place a subsidiary into bankruptcy and then ‘ride the coat tails’ of that subsidiary to obtain the benefits of bankruptcy relief without the burdens,” Morgan Stanley’s lawyers wrote. They also said there is no evidence that Morgan Stanley or other parties may force other units of Lyondell into bankruptcy.

Guarantee

Morgan Stanley holds a guarantee on payment of up to $150 million, issued by LBIAF on Sept.26, according to court documents.

Dow Chemical said it was owed less than $1 million for products it sold to the company prior to Lyondell’s bankruptcy.

Wachovia Bank also filed an objection to the injunction, saying it is owed around $63.4 million under agreements related to currency swap transactions with Lyondell Chemical that were guaranteed with LBIAF.

At issue is whether holders of LyondellBasell’s 8.375 percent notes due 2015 can accelerate the notes, claiming that the U.S. unit’s bankruptcy constitutes a default. Lyondell said in court documents that some holders of those notes who also hold credit-default swaps used to hedge the debt, seek to gather owners of 25 percent of the notes to demand accelerated payment. The acceleration would trigger a payout under credit-default swaps, a form of insurance against losses on debt investments.

Lyondell said in court documents that it should be given an injunction to prevent such acts, claiming it could drive the Dutch parent into bankruptcy, and force the U.S. unit to default on the $8 billion “debtor-in-possession” loan that funds its reorganization.

The case is In re Lyondell Chemical Co., 09-10023, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Tiffany Kary in New York Bankruptcy Court at tkary@bloomberg.net.

Last Updated: February 12, 2009 12:50 EST