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February 16, 2010 7:45 PM

$450 Million Settlement with Creditors Could See Lyondell Exit Chapter 11

Posted by Brian Baxter

Just days after unsecured creditors lashed out at Lyondell Chemical’s bankruptcy counsel at Cadwalader, Wickersham & Taft, a tentative settlement with those same creditors announced on Tuesday could open the way for Lyondell to exit bankruptcy by the end of April.

The latest deal sweetens a previous agreement reached in December between Lyondell and a group of banks to settle a civil suit stemming from Lyondell's $12.7 billion acquisition by Netherlands-based Basell AF in 2007, according to Bloomberg. Basell is owned by Access Industries Holding, the private investment firm run by billionaire Leonard Blavatnik, who subsequently took control of LyondellBasell.

The merger created the world's third-largest petrochemical maker, but it also left LyondellBasell with a crippling debt load that eventually forced the company's U.S. unit into bankruptcy in January 2009. (Lawyers from Cadwalader, Davis Polk & Wardwell, and Simpson Thacher & Bartlett had a part in the Chapter 11 case, advising on one of the largest DIP facilities in U.S. bankruptcy history.)

As we've previously reported, U.S. bankruptcy judge Robert Gerber granted Lyondell's official committee of unsecured creditors a big victory last summer when he ruled they could proceed with a civil suit against the company and several Wall Street banks that helped finance the merger.

Represented by Brown Rudnick restructuring chair Edward Weisfelner, bankruptcy partner Steven Pohl, and litigation partner Sigmund Wissner-Gross, creditors claimed that Basell and its lender banks fraudulently pushed for a merger with Lyondell in order to realize short-term profits in lieu of long-term financial stability. The suit was days away from trial when Lyondell reached its December settlement with lenders that would pay creditors $300 million when the company emerged from bankruptcy.

But creditors reacted angrily to the accord and sought to scuttle the settlement in bankruptcy court. Weisfelner, who was not immediately available for comment, called the December accord between Lyondell and several Wall Street banks "outrageous" and "reprehensible" in this previous interview with The Am Law Litigation Daily.

That contentiousness manifested itself last week when creditors claimed that Cadwalader lawyers had a conflict when negotiating the December settlement between Lyondell and its lender banks. As reported by The Wall Street Journal, court documents filed by Brown Rudnick claim that Cadwalader financial restructuring partner George Davis and litigation partner Howard Hawkins, Jr., both represented Merrill Lynch in two other bankruptcy cases at the same time they were representing Lyondell. (Click here for Cadwalader's rebuttal, courtesy of The WSJ.)

A trial on the validity of the December agreement between Lyondell and its lender banks was scheduled to begin this week in bankruptcy court, Bloomberg reports, only to be averted by the news that Lyondell had upped its settlement offer to $450 million.

The additional $150 million, which Reuters reports will be distributed as equity in any reorganized Lyondell that successfully emerges from bankruptcy, appears to have appeased Brown Rudnick and its unsecured creditor clients. Weisfelner said in court on Tuesday that the agreement will see "a new era of cooperation" among "previously warring parties," according to Reuters.

Lyondell's Chapter 11 case has been padding the billables for more than a dozen law firms. In addition to Davis and Hawkins, Cadwalader financial restructuring cochairs Deryck Palmer and John Rapisardi, bankruptcy partners Mark Ellenberg, Peter Friedman, Andrew Troop, and Christopher Mirick, and litigation partners David Williams and Israel Dahan are lead debtors' counsel.

Susman Godfrey partners H. Lee Godfrey, Vineet Bhatia, and Kenneth Marks are serving as conflicts counsel to Lyondell, while Gardere Wynne Sewell litigation chair Richard Faulk and partner Jose Berlanga are special litigation counsel. Jay Goffman, cohead of the financial restructuring practice at Skadden, Arps, Slate, Meagher & Flom, is advising parent company LyondellBasell. (Skadden previously advised Basell in its merger with Lyondell.)

Other parties in the case and their respective legal counsel include: Quinn Emanuel Urquhart Oliver & Hedges for Access Industries; Akin Gump Strauss Hauer & Feld for first-lien lender LeverageSource (a fund of Apollo Management); Davis Polk for Citibank; Simpson Thacher for UBS; Mayer Brown for Merrill Lynch; and Kaye Scholer for ABN Amro.

India's Reliance Industries has expressed interest in acquiring LyondellBasell in a deal that values the company at $13.5 billion. But LyondellBasell is reported to have rejected Reliance's offer in favor of confirming a reorganization plan for its U.S. unit in bankruptcy court.

Any final agreement between Lyondell, its lenders, and creditors will need bankruptcy court approval. Bloomberg reports that three trusts will be created to resolve any outstanding legal disputes, noting that Gerber has set a hearing date of March 1 for approval of the settlement.

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