Lyondell ignores RIL’s offer, files rescue plan

Reliance Industries’ (RIL’s) attempt to take over the world’s third-largest independent chemical company, LyondellBasell Industries, faces its first hurdle on Tuesday when the beleaguered company’s management argues its rescue plan for the company before the special bankruptcy court of New York South District.

Despite getting feelers from RIL for an acquisition and cash-infusion into the company, the LyondellBasell management on Friday filed an updated rescue plan centred around a $2.5 billion cash infusion by the company’s former owner and two investors. The plan, if implemented, would wipe out the rights of the current equity holders and transfer the company to the sponsors of the $2.5 billion rights issue and its existing creditors. Ratification of the plan would also significantly dampen RIL’s chances of acquiring the company on bankruptcy-induced, favourable terms.

The company, which had revenues of $50.7 billion (Rs 2,33,000 crore) before going into bankruptcy in early 2009, urged all creditors to accept the refurbished proposal, a call which has already been rejected by one group of creditors.

“The debt (company) believe that acceptance of the plan is in the best interests of the debtors’ estates, their creditors and all other parties in interest. Accordingly, the debtors recommend that you vote in favour of the plan,” the company said in its preface to the plan.

The opposition to the new plan, which will see the company being handed back partly to its previous owners, has been spearheaded by the ‘unsecured’ creditors group, called the ‘Creditors’ Committee’. They have already filed a written objection to the plan, which was shared with them earlier this month. Besides general unsecured creditors, who are expected to hold a few billion dollars worth of debt, the company will also have to secure approvals from holders of $1.35 billion bonds and those who arranged a temporary ‘bridge’ loan of $8.5 billion at the time of the company’s formation through a merger in December 2007.

In addition, it will also have to get the go-ahead from a group of secured debt holders who, too, lent money to the company as part of the merger, now totalling $12.1 billion. Those involved in the bridge loan include Merrill Lynch Capital Corp, Citibank, Merrill Lynch, Pierce, Fenner & Smith, Goldman Sachs Credit Partners, Citigroup Global Markets, ABN Amro and UBS Securities. Parties involved in the $12.1 billion secured credit include Deutsche Bank Trust Company Americas, Citibank, Citigroup Global Markets, Goldman Sachs Credit Partners, Merrill Lynch, Pierce, Fenner & Smith, ABN AMRO and UBS Securities.

According to the plan submitted by the company, the top priority will be on repaying $2-4 billion loan taken by the company after bankruptcy and another $3.25 billion old loans tied to the post-bankruptcy loan as super priority.  In comparison, the bridge loan lenders will get only 6.3% of their loan amount ($8.5 billion) and general unsecured creditors will get only 10.7% of their loan amount. The amount of recovery for secured creditors will depend on the value of the new company, according to the plan.

According to US bankruptcy law, the plan has to be approved by the Court and by each of the above class of stakeholders. Equity holders are not entitled to vote as they are deemed to have lost all their rights with the bankruptcy, according to the plan.
Each class is considered to have accepted the plan if more than one half of the class members and holders of at least two-thirds of the claims in that class vote yes. The company said it may rework the plan if any class of claimants disapproves it, or approach the Judge to pass it nonetheless.

The Creditors’ Committee, representing general unsecured creditors, has already urged the court to dismiss the plan and allow it to come up with a better alternative after working with interested investors like Reliance Industries.