Lyondell Battle Pits Reliance against Lenders

Lyondell Chemical (LYO) filed a plan to reorganize even as it evaluates an offer from Reliance Industries, pitting India's biggest company against lenders in a battle for the bankrupt chemical maker.

Lyondell plans to reorganize by repaying its $8 billion bankruptcy loan in full and giving an equity stake in the new company to lenders, including sponsors of a $2.8 billion rights offering. The plan, outlined in U.S. Bankruptcy Court in Manhattan, "won't preclude Reliance from making a bid if it chooses to do so," said Lyondell spokesman David Harpole.

As creditors try to figure out whether to accept the plan, and weigh how much stock in a new, reorganized Lyondell could be worth, Reliance has yet make public the value of its bid for the company's Netherlands-based parent, LyondellBassell Industries AF. Reliance spokesman Manoj Warrier declined to comment on the reorganization plan or say when the offer details may be unveiled.

"This looks like a fight over who will ultimately control the company," said Lorraine McGowen, a lawyer at Orrick, Herrington & Sutcliffe LLP not involved in Lyondell. She said the unsolicited bid may mean the company doesn't need its rights offering sponsors.

Reliance Expansion

Reliance, an oil refiner and energy explorer controlled by billionaire Mukesh Ambani, is seeking assets abroad to reduce the risk of investing mostly in India, where it is battling a lawsuit over natural-gas supplies with a company owned by Mukesh's estranged brother, Anil Ambani. Acquiring LyondellBasell would give the Mumbai-based company chemical plants, two oil refineries and access to the U.S. fuel market, the world's biggest.

"Reliance needs to have assets in the U.S. and Europe if they are to become a global energy company," said Juergen Maier who manages 750 million euros ($1 billion) of assets at Raiffeisen Capital Management in Vienna.

Houston-based Lyondell was formed in a 2007 deal financed with $22 billion in debt in which it was bought by Basell AF, a unit of billionaire Len Blavatnik's Access Industries Holdings LLC. Creditors have alleged the buyout crippled one of the world's largest polymers, petrochemicals, and fuel companies, causing it to seek bankruptcy.

Access and Apollo

Access and Apollo Management, named in the creditors lawsuit, have affiliates that are backers of the company's rights offering, and might not get an equity stake in the new company if Reliance's offer succeeds. Ares Corporate Opportunities Fund III is a third sponsor of the rights offering, according to the court documents.

Reliance may pay as much as $12 billion for a controlling stake, Victor Shum, a Singapore-based senior principal at energy consultant Purvin & Gertz Inc. said last month.

"LyondellBasell and its advisers continue to evaluate this proposal," lawyers for the company said in court documents.

If the deal goes ahead, a breakup fee for sponsors of the rights offering won't be required, according to court documents.

Lyondell's timing of the plan, which comes before an offer is cemented, is odd, McGowen said, as the company could have to resolicit creditor votes and amend its entire plan if the bid succeeds.

"They don't want to upset the applecart with what they have, but to fulfill their fiduciary duty, they have to investigate what may be a better offer," McGowen said.

LyondellBasell received a non-binding offer from Reliance on Nov. 15. The bid would give the Indian company a controlling interest in Lyondell upon emergence from bankruptcy.

'Best Interests'

Harpole said the plan outlined in court documents has the support of the majority of Lyondell's lenders and "is in the best interests of our estate."

Steven Anreder, a spokesman for Apollo, declined to comment.

LyondellBasell expects to have $25.71 billion of debt as of Feb. 28 that will be cut to $7.19 billion upon emergence from bankruptcy, Harpole said.

The plan calls for lenders of the company's $8 billion bankruptcy loan to be paid in full. Holders of as much as $4.9 billion in "new money" claims under the "debtor in possession" loan will be paid in cash, and holders of $3.25 billion in so-called roll-up claims, in which pre-bankruptcy lenders rolled their old claims into a new loan, will be paid in new third-lien notes.

Lyondell Loans

Lyondell's so-called roll-up loan began trading in New York yesterday at 97 cents on the dollar and closed at 102.5 cents on the dollar, according to people familiar with the financing. Lyondell's CAM loan ended trading at 73.5 cents on the dollar yesterday in New York, the people said. It ended trading Dec. 11 at 78.5 cents on the dollar, said the people, who declined to be identified because the trades are private.

Senior secured lenders, with claims of $9.51 billion, will get paid "in full and complete satisfaction" of their claims with a portion of Class A stock in the new company and a right to purchase Class B shares. Lyondell's court documents didn't specify a percentage for their estimated recovery.

Bridge loan lenders, with claims of $8.3 billion, will get a 6.3 percent recovery, paid in Class A shares. Other secured claims, worth as much as $262 million, will get paid in full by having their debt reinstated, or paid "in the ordinary course of business." General unsecured claims, worth as much as $1.22 billion, will get about an 11 percent recovery, plus rights to recovery from litigation.

The plan also incorporates a settlement that U.S. Bankruptcy Judge Robert Gerber has said he will consider the fairness of at trial before Lyondell seeks confirmation of its reorganization plan in March. Lyondell said Dec. 7 it settled its unsecured creditors' lawsuit with the lenders. The creditors said they didn't agree.

The main case is In re Lyondell Chemical Co., 09-10023, and the adversary case is 09-01375, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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