Wednesday, February 25, 2009

Lyondell On Verge Of Losing $8 Billion DIP Loan

Lyondell CFO Alan Bigman testified in bankruptcy court today, pleading with the judge to get approval of the bankrupt company's request for an $8 billion DIP (the largest in history and yielding a 20% interest rate to some of the lenders), as without it the chemical company may very well go straight to liquidation. Objecting parties to the Debtor In Possession loan are of course unsecured creditors and bondholders, which would be crammed down even more, thereby virtually guaranteeing no recoveries for them as a result of a successful Chapter 11. Curiously, a member of the DIP lending syndicate, ABN Amro has said it would likely drop out of the syndicate after disagreements on the treatment of foreign liens.

Even if Lyondell gets approval for the DIP, which is the likely outcome, it will be working against the clock, as the proposed DIP matures in December, and is required to file a full plan of reorganization by mid August. Seeing how the average plan of reorg takes about 1-1.5 years (with notable outliers on the lengthier side Delphi and Interstate Bakeries) to be put together and approved, this seems like a lost cause. In case Lyondell is unsuccessful in creating a Plan by the contractual deadline, it will be forced to hand over the keys to its creditors. When asked by Judge Robert Gerber why the CFO has not renegotiated the terms of the DIP with the syndicate, Bigman candidly replied that he has no leverage (no pun intended) in any negotiation - he is counting his lucky stars he even managed to get any form of an $8 billion loan in the first place. Also when cross-examined by creditor lawyers he said that the "[Plan of Reorg filing deadline] could be a way [for creditors] to assert control, yes."

The DIP decision should come shortly. Never a dull day in the world of super secured loans.
Lyondell is Southern New York case 09-10023. Sphere: Related Content
Print this post