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March 6, 2009 1:21 PM

Simpson, Davis Polk, Cadwalader on Record Financing for Lyondell

Posted by Julie Triedman

On Wednesday, Lyondell Chemical Company, in Chapter 11 and facing the specter of liquidation, closed on a hard-won deal for $8-plus billion in new and refinanced loans. The injection of cash is expected to keep the ailing chemical conglomerate solvent while it reorganizes--at least through the end of the year. 

The so-called debtor-in-possession financing, or DIP, was wrangled from a consortium of 14 bank lenders in late December but took till early March to come to fruition. And it did not come easy, lawyers for the DIP lenders told The Am Law Daily.

Lyondell agreed to pay lenders a 13 percent interest rate, but combined with commitment and exit fees, the real rate is closer to 20 percent. And under the terms of the deal, the company has to reorganize and repay the debt by the end of this year.

The deadline for reorganization is "aggressive," agrees Cadwalader's George Davis, who led negotiations for Lyondell, "but it was a miracle that we were able to get commitments like this in the current credit environment." He says the deal represents the largest DIP financing in history. (The largest previous one, he says, was in 2007, when Calpine Corp. received $5 billion.)

The DIP financing includes $3.25 billion of new term loans and a $3.25 billion “roll-up” of some of Lyondell’s existing prepetition senior secured loans. Another $1.54 billion in DIP funding is a revolving loan facility backed by the company's operating assets. 

Davis's team negotiated the rough structure of the financing with potential lenders at Cadwalader's offices during the last two weeks of December; the final terms were hashed out in the following weeks. Davis was assisted by Julian Chung; the litigation was handled by Mark Ellenberg, Howard Hawkins, and counsel Peter Friedman led on litigation. They were assisted by Geoffrey Levine, Joshua Weiss and associates Douglas Mintz, John Thompson, Ellen Halstead, Meghan Sercombe, Thomas Donigan, Stephanie Gaese, Albert Soler, Patrick Oh,  Chauncey Cole, Christopher Updike, LaNasha Houze, David Forsh, and Jacob Calvani.

Late last week, objectors to the financing plan had their day in court. At a three-day evidentiary hearing, the creditors committee argued that the terms were unfair. They objected to the December 31 maturity date and various triggers for default and sought the right to buy extensions on the proposed financing. Another group of objectors, a group of noteholders in specific Lyondell debt, argued that they were entitled to the same protections and rights as the DIP lenders.

“To be sure, this DIP has its warts," Lyondell's lead trial counsel, Cadwalader's Mark Ellenberg, told U.S. bankruptcy judge Robert Gerber last Friday. “But warts and all, the question this debtor had to ask, is: Is this DIP better than a liquidation?” Ultimately, the judge agreed with Ellenberg and the DIP lenders' lead bankruptcy trial counsel Marshall Huebner of Davis Polk & Wardwell, approving the plan last Friday. The deal closed Wednesday without major changes.

Huebner's team represented Citigroup, as lead arrranger of the $1.54 billion asset-backed term facility. The Davis Polk team also included Elliott Moskowitz, Jane Yoon, Darren Klein, and Tenley Laserson on the bankruptcy litigation and Bradley Smith, Joanna McGinley, and Angela Doolan for bank financing matters.

UBS, as lead agent of the $6.5 billion term financing facility, brought in Simpson Thacher & Bartlett in early January; a 23-lawyer team led by Stephan Feder and William Sheehan has led negotiations on the terms of the overall financing since then. The two were assisted by David Eisenberg, Walter Looney, Christian Struck, Joshua Koenig, Ursula Mackey and Benjamin Wells for corporate advice, Kathrine McLendon, Anne Knight and Jason Friedman for bankruptcy advice, Linda Martin, Natalie Drucker, Daniel Stujenske, Edward Bauer and David Tejtel for litigation advice, Robert Holo and Jason Vollbracht on tax issues, Mardi Merjian and Julia Rubin on real estate matters, Lori Lesser and Marcela Robledo for IP issues, Adeeb Fadil and Timothy Mulvihill for environmental matters, and Gregory Grogan on benefits.

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