December 31, 2008 / 4:20 PM / 10 years ago

UPDATE 3-LyondellBasell considers bankruptcy filing

(Adds payment deadline extension, chief restructuring officer, paragraphs 13-15)

By Caroline Humer

NEW YORK, Dec 31 (Reuters) - LyondellBasell, the world’s third-largest petrochemical company, is considering filing for Chapter 11 bankruptcy protection as it tries to restructure its debt, a company spokeswoman said on Wednesday.

“As we have said publicly, we are looking to restructure our debt and we are exploring all of our options. Filing for Chapter 11 is one of those options,” spokeswoman Susan Moore said.

The company said it had hired advisers, including Evercore, turnaround firm Alix Partners and New York law firm Cadwalader, Wickersham & Taft LLP, to counsel it as it restructures.

The news comes as privately held LyondellBasell has struggled with decreasing demand for petrochemicals and cut production at some locations amid a global economic downturn.

It also reflects the unwinding of debts piled up in recent years as banks lent money cheaply, especially in leveraged buyouts. Newspaper owner Tribune Co TRBCQ.PK and retailers Mervyn’s and Linens ‘N Things [LNNHDL.UL] are just a few of the companies that have succumbed to big debt loads this year.

Companies that have tried to renegotiate their debts have found it difficult as banks have pulled back on lending.

“The combination of what happened in the global marketplace inside a really difficult credit market has put an awful lot of pressure on some of these highly leveraged companies,” said Timothy Hanley, vice chairman of Deloitte & Touche, in charge of the company’s U.S. process and industrial products segment.

“With those kinds of places like Lyondell, which obviously has taken on a significant amount of debt, it just makes it a lot more difficult for them to work through things,” he said.

RESTRUCTURING DEBT

LyondellBasell [ACCEIN.UL] was created a year ago when Dutch-based Basell, a unit of Russian-born billionaire Len Blavatnik’s Access Industries, bought Houston-based Lyondell for about $12.7 billion.

LyondellBasell disclosed in a Dec. 29 regulatory filing that it had begun negotiating with lenders on extending payment dates and restructuring debt. It negotiated one postponement on $160 million in loan-related fees, the filing said.

Its lenders include Merrill Lynch MER.N, Goldman Sachs (GS.N), Citigroup (C.N), ABN AMRO and UBS Securities LLC UBSN.VX, according to filings.

The company has $26 billion in debt, according to Standard & Poor’s, which slashed the company’s rating to “selective default” on Tuesday. Moody’s Investors Service also cut the company’s rating by two notches, to Caa2 from B2.

Two subsidiaries, Lyondell Chemical and Equistar Chemicals, said in U.S. regulatory filings on Wednesday that the lenders agreed to repostpone payment of the $160 million in fees as well as $121 million of interest payments until Jan. 4.

But Lyondell Chemical said separately that a credit extension it had requested for its revolving credit agreement had been denied, and it disagreed with the basis for the denial. A Lyondell spokesman declined to elaborate further.

The two subsidiaries also said Kevin McShea from Alix Partners was set to become chief restructuring officer of the parent company. Previously, he led an operational improvement project at Canadian electronics firm Celestica Inc (CLS.N) and a turnaround team at Canadian drug maker Patheon Inc PTI.TO.

News of a possible bankruptcy filing drove down LyondellBasell’s London-traded bonds on Wednesday. Its 500 million-euro bond US022628569=, due to mature in 2015, was bid at 4 percent of face value and offered at 8 percent, down from 8 percent bid in the weeks up to Christmas, a trader in London said.

“The advisers have been appointed, so now we will have to wait to see what proposals they come up with,” the trader said. “But bondholders and second lien investors will have to take massive haircuts if there is some decision made to keep the company going with Access putting more money in.”

Hiring advisers does not necessarily mean a company will file for Chapter 11 bankruptcy protection. Some companies are able to restructure debt and operations outside of court.

NO EFFECT ON REFINERY SUPPLIES

News of a possible bankruptcy can make it hard for a company to receive supplies from vendors, who worry about being compensated by a bankrupt firm. The company, which owns and operates two crude oil refineries in Houston and in France, said there had been no changes at refinery operations.

The Houston refinery is one of North America’s largest, capable of producing 270,600 barrels per day of motor fuel. The refinery in France, just acquired last April, can process 105,000 barrels per day. (Reporting by Caroline Humer; additional reporting by Natalie Harrison in London, Michael Erman and Emily Chasan in New York, Bruce Nichols in Houston, and Braden Reddall in San Francisco; editing by John Wallace, Matthew Lewis, Gary Hill)

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