LyondellBasell's Problem

While LyondellBasell's U.S. operations are pledging to emerge from bankruptcy, in Europe, LyondellBasell is falling into a financial hole.

When the firm filed for bankruptcy protection last month, its European operations were not included. Last week, however, LyondellBasell failed to make interest payments on two European bonds that together represent more than $1.2 billion of the company's debt. The bonds allow a 30-day grace period, but Tobias Mock, an analyst with the credit rating agency Standard & Poor's, doesn't think the company will make the payments.

In a note to clients, Mock wrote that he believes LyondellBasell's cash flow generation will "remain very weak in the coming months as a result of a significant decline in demand for plastics and low capacity utilization for LyondellBasell's chemical plants across the globe."

S&P assigned a credit rating of D to LyondellBasell, indicating that the company is in default. Similarly, Fitch Ratings lowered its rating to D and then withdrew its ratings for the company altogether.

The U.S. operations, largely Lyondell Chemical, recently won a temporary restraining order from the bankruptcy court overseeing its case that would prevent its creditors from going after the parent company. The order also prevented the owners of the two European bonds from accelerating the 2015 date of maturity.

Lyondell Chemical is "doing everything possible to bring the company out of bankruptcy by the end of this year," says a spokesman for the firm. "That is our goal."

As part of the bankruptcy, Lyondell Chemical is idling, indefinitely, its 1.2 billion-lb-per-year ethylene cracker complex in Chocolate Bayou, Texas. The plant has been under temporary shutdown since December.