Dutch chemical giant LyondellBasell Industries announced Tuesday that its U.S. operations and one if its European holding companies have voluntarily filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code due to a decline in sales as well as a cash crunch. The filing would help the units to reorganize and restructure the debts under the supervision of U.S. courts.
However, the vast majority of LyondellBasell's non-U.S. operating entities is not included in the filing and will continue their business operations without supervision from the U.S. courts.
In a statement, chief executive officer, Volker Trautz said, "We have been working collaboratively with our creditors and our equity holder on a financial restructuring that reflects the realities of today's market environment and positions us for the future.
"During the past two quarters, we have seen a dramatic softening in demand for our products and unprecedented volatility in raw materials costs. December was particularly difficult, as many of our customers postponed orders to reduce their inventories," Trautz added.
Prior to the filing, LyondellBasell took a number of major steps over the past several months to rein in costs in response to a very difficult global economic environment. The company announced plans to significantly reduce headcount and also reduced capital expenditures and working capital. The company is also aggressively exploring additional ways to lower costs and streamline operations.
The Chapter 11 bankruptcy filing made at the federal court in the Southern District of New York in Manhattan covered LyondellBasell's operations in the U.S. Lyondell Chemical Co. and its European operations under Basell Germany Holdings GmbH.
A Chapter 11 filing is a legal mechanism for court-supervised reorganization or restructuring of a company's obligations. Chapter 11 provides companies the time and resources to restructure and reduce their debts while continuing day-to-day operations and does not mean liquidation of the company or that the company is going out of business.
LyondellBasell was formed in December 2007, when privately held Dutch chemical company Basell AF SCA bought Houston-based Lyondell Chemical Co. for $48 per share, a premium of about 20% and at total value of about $12.7 billion. LyondellBasell is global leader in polyolefins technology, production and marketing, a pioneer in propylene oxide and derivatives, and a significant producer of fuels and refined products, including biofuels.
Basell is a division of investor Len Blavatnik's U.S.-based industrial group Access Industries. Basell, which was bought in 2005 by the private investment firm Access Industries, was formed in 2000 from the combination of the polyolefin businesses of Royal Dutch Shell Group (RDS-A, RDS-B) and BASF.
The debt burden from the Lyondell and Basell deal last year is proving to be detrimental for the company that has annual sales of about $54 billion with 16,000 employees.
The company noted that it would seek bankruptcy court approval for $8 billion in debtor-in-possession or DIP financing in order to continue day-to-day operations. The figure includes $3.25 billion in new funding, $3.25 billion from refinancing existing debt and $1.515 billion in replacement of existing working capital facilities.
LyondellBasell has hired New York law firm Cadwalader, Wickersham & Taft LLP as bankruptcy counsel and has also retained Evercore Partners Inc. as financial adviser, while AlixPartners LLC would assist in the restructuring.
In December, LyondellBasell said its unit Equistar Chemicals LP would temporarily idle a Chocolate Bayou, Texas-based chemicals plant, citing the challenging market and economic conditions.
A rally in oil prices, which rose to a record of $147.47 a barrel in July 2008, and the economic slowdown have deeply hurt the chemical industry, which is facing a slump in global demand for their products. However, since July oil prices have pulled back significantly. On Sunday, Kuwait scrapped a multi-billion dollar deal to buy a 50% stake in chemical and agricultural products manufacturer Dow Chemical Co.'s (DOW) plastics-making unit.
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