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Debt Threatens LyondellBasell

Restructuring measures under consideration include possible Chapter 11 bankruptcy protection

by Patricia L. Short
January 12, 2009 | APPEARED IN VOLUME 87, ISSUE 1

LyondellBasell is looking "to restructure our debt, and we are exploring all of our options," says Susan Moore, vice president of communications in the company's Houston office.

One of those options, she confirms to C&EN, could include filing for Chapter 11 bankruptcy protection in the U.S. The Netherlands, where LyondellBasell is officially based, does not have any comparable financial protection. Moore says, "We are working collaboratively with our banks to find the most efficient way to restructure."

This statement confirms a story about LyondellBasell's troubles that appeared on the front page of the Wall Street Journal on Dec. 31.

LyondellBasell was created just a year ago when Basell acquired Lyondell. The new company's pro forma 2007 sales were $44.7 billion—a total that would have placed the firm in the number four position, after BASF, Dow Chemical, and Shell, in C&EN's annual ranking of global top 50 chemical companies. The deal had industrial logic to it, but the price paid by Basell, a premium of about 20%, has left the company vulnerable to the battering that the worldwide chemical industry is currently taking.

Record high prices for oil and gas fed through to the industry's products, but a subsequent sharp drop in sales has left the industry's inventories overpriced at the same time that demand has collapsed. Many chemical companies have temporarily shut down production. LyondellBasell, for example, earlier this month temporarily idled its olefins unit at Chocolate Bayou, Texas; the unit has annual capacity of 1.2 billion lb of ethylene and 725 million lb of propylene.

The two major credit rating agencies—Moody's and Standard & Poor's—both downrated LyondellBasell on Dec. 30.

Standard & Poor's analysts declared that LyondellBasell has entered "selective default"???a technical status entered when the chemicals giant postponed for 10 days $160 million in loan payments.

That rating "should not be misinterpreted to suggest that LyondellBasell is currently in default of its bank agreements," the chemical producer noted in a formal statement.

And Moody's Investors Service downgraded its ratings for LyondellBasell, placing the ratings under review for possible further reduction. The review, a Moody's statement says, "will monitor the outcome of the restructuring discussions" that the highly indebted company holds with its lenders.



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