Saturday, February 28, 2009

Bankrupt Lyondell Wins Reprieve as DIP Approved, Bondholders Doomed

On Friday afternoon Judge Bobby Gerber, who has yet to bitchslap his wife for showing up home late, approved Lyondell's DIP loan, preventing sure liquidation, but likely dooming unsecured creditors to zero recoveries on their claims. As expected, Gerber said "The debtors absolutely need the funding and without it they would liquidate." Curiously, Gerber gave an indication of the tsunami (to use the parlance of our times) of bankruptcies coming up, making the only condition to the DIP flexibility of when he will hold hearings citing “terrible economic times” that have increased his case load. It is a sure lagging indicator of a depression when bankruptcy judges have to work 24 hour days. Demonstrating some judgian humor, Gerber said "If lenders don’t like it, they can file me a new plan."

The biggest losers from the DIP approval were unsecured bondholders, who will now be crammed down under a mountain of secured debt, virtually eliminating the possibility of any recoveries.

Gerber also overruled objections from Lyondell’s committee of unsecured creditors. They had alleged that the loan wasn’t made in “good faith,” that the initial December maturity date is too early, and some financial covenants are “tripwires” for defaults that would hand control of the company to the lenders.The creditors also claimed lenders were trying to use the DIP loan to “stymie inquiry” into what may have been a fraudulent transfer involving Lyondell’s 2007 merger with billionaire Len Blavatnik’s Basell AF.
Seems much more soap opera is destined to come out of this case, which has all the elements: a Russian shady billionaire, bankruptcy, angry bondholders, a sarcastic if not pugilistic judge, lots and lots of deadly chemicals, and the usual murder of lawyers. Sphere: Related Content
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Anonymous said...

"likely dooming unsecured creditors to zero recoveries on their claims"
who decides how much haircut unsecured creditors will take? bankruptcy judge? and do senior secured creditors also take a haircut? thanks! love your blog..

PS: Guess you should post a premier on DIP financing:)