A US judge said on Friday that he will hear arguments from Lyondell Chemical Co’s creditors in February about the validity of a settlement of their $22 billion lawsuit against the banks and advisors who put together Lyondell’s leveraged buyout in 2007.
Reliance Industries is trying to acquire the embattled petrochem major by teaming up with a section of its creditors and offering a better deal than the company’s management.
Earlier this week, just days ahead of a scheduled trial on the creditors’ lawsuit, Lyondellsaid it had arrived at a settlement with most of its secured creditors on its plan to exit bankruptcy.
According to Lyondell’s media statement on Thursday, creditors who together held debt of $18 billion out of its total debt of around $28 billion, had reached an agreement.
Under its new agreement with secured creditors, it will issue shares in the post-bankruptcy company to the creditors, it said. It, therefore, has modified its original plan of reorganistion, which would have seen its former owners end up with a substantial part of the post-bankruptcy company.
Unlike its earlier plan, under the new one, secured creditors who settled with the company will get shares in return for their entire $18 billion worth of debt.
“[The plan] documents have been revised to reflect the agreement reached with substantial holders of the senior and bridge debt to convert approximately $18 billion of senior and bridge debt into common equity under the Plan and the allocation of such equity in the reorganised LyondellBasell between the holders of such debt if the Plan is confirmed,” the company said in a press release.
The new deal does not have the support of a section of creditors and is primarily between the company and the creditors who supplied it will temporary (bridge) and long-term loans at the time of its formation in late 2007.
Unsecured creditors, who stand to lose most of their claims under the company’s plan of reorganisation, are particularly unhappy.
The creditors committee had earlier taken the bridge lenders and others to Court in a separate litigation, alleging that they were instrumental in the formation and the subsequent failure of LyondellBasell through a highly leveraged merger in 2007.
They sued the lenders and advisers, including Citigroup Deutsche Bank AG and Goldman Sachs Group Inc, contending that the buyout of Lyondell by Basell left the company doomed to fail because it had “unreasonably small capital” to support the debt from the merger.
The judge Robert Gerber said that Lyondell’s creditors could seek documents about whether the settlement was “collusive” and he would expect to hold a hearing around February. Gerber said he would do whatever was in the best interests of the bankruptcy estate.
Reliance’s chances will depend on whether the judge finds the settlement announced by the company with a large section of creditors to be fair or not.
If it finds that the settlement is collusive, the judge is likely to disapprove of the current re-organisation plan suggested by the company.
Under the current plan, Reliance is unlikely to be able to acquire the company at an agreeable valuation.
However, if the judge finds the new plan “collusive” and partial, he may ask for alternate rescue plans which is likely to create an opportunity for the Mukesh Ambani firm.
Comments