This article is provided to FT.com readers by Debtwire—the most informed news service available for financial professionals in fixed income markets across the world. www.debtwire.com
--------------------------------------------------------------------------------------------------------
Lyondell Chemical entered bankruptcy eight months ago amid a pitched battle over a backstopped DIP loan that many lenders attacked as prejudicial. Now the debtor is preparing to exit Chapter 11 and a strikingly similar fight is brewing over the rights offering that is expected to refinance the USD 3.25bn super-priority loan.
Whoever wins that contest will grab the fulcrum of Lyondell’s capital structure.
A nascent group of Lyondell Chemical loan holders held a conference call last week to discuss how best to pre-empt a widely anticipated rights issue by Apollo Management and shareholder Access Industries. Marathon Asset Management organized the call and participants discussed matching any new money injection proposed by Apollo and Access, a trader, a lender and a proprietary trading desk analyst told Debtwire.
The pair of investors stands ready to kick in as much as USD 2bn of new equity, said a source involved in the bankruptcy. But the company is seeking USD 2.5bn to reduce its debt load upon exit from bankruptcy, he added.
Both firms are substantial senior lenders in their own right. If the duo backstopped a rights offering to take out Lyondell’s rollup DIP, they would corner a disproportionate slug of post-bankruptcy equity, diluting recoveries for other loan holders, said the trader and the analyst.
Matching any new money coming from Apollo and Access would ensure an equitable share but it remains unclear how much cash existing lenders are willing to front, said the trader and the sellside analyst.
The informal lender group included cross holders of the debtor’s DIP facility and pre-petition loans, the trader, lender and analyst said. York Capital and Avenue Capital also participated in yesterday’s call, the analyst said.
Lyondell’s first lien lenders faced a similar quandary in January when a consortium of second lien lenders proposed to fully backstop the debtor’s DIP in order to leapfrog up the capital structure. The two sides eventually agreed to split participation in the new facility.
Lyondell’s USD 3.25bn Libor+ 1000bps new money DIP term loan has been bid around 103.5 since mid-July, according to Markit. The debtor’s USD 3.235bn L+ 325bps roll-up term loan is bid at 91.5-93 today, up from 90-91.8 on 21 August. The USD 9bn L+ 350bps non roll-up pre-petition TLB is bid at 48.5- 47.1 today, up from 45.5-46.7 on 21 August.
While Lyondell’s lenders talked strategy, an ad hoc group of bond holders at the Nell operating company level gathered on a separate call last week with legal counsel Kasowitz Benson to discuss their litigation, said the trader. Last month, the ad hoc group, which holds the debtors’ USD 615m and EUR 500m 8.375% in Nell bonds, began organizing with plans to sue Lyondell based on claims that that Lyondell’s USD 22bn leverage buyout violated a EUR 1.95bn indebtedness cap contained in their inter-creditor agreement, as reported.
A spokesperson for Lyondell declined to comment. Calls to Marathon, Avenue and York were not returned.
--------------------------------------------------------------------------------------------------------
For more information or to inquire about a trial please email sales@debtwire.com or call Americas: +1 212-686-5374 Europe: +44 (0)20 7059 6113 Asia-Pacific: +852 2158 9731
