Chemical Maker LyondellBasell Files For Bankruptcy Amid Massive Debts

January 7, 2009 5:01 a.m. EST

New York, NY (AHN) - LyondellBasell Industries AF became the latest victim of the financial crisis and the first major company in the chemical sector that filed for bankruptcy protection late Tuesday.

The company has been struggling with the on-going decline in the number of chemical and plastic sales across the globe amid credit crunch and a massive debt.

"During the past two quarters, we have seen a dramatic softening in demand for our products and unprecedented volatility in raw materials costs," LyondellBasell Industries Chief Executive Officer Volker Trautz said in a statement.

"December was particularly difficult, as many of our customers postponed orders to reduce their inventories. Though we currently anticipate this situation to be short-term and expect customers to increase their purchasing in 2009, we made the decision to file Chapter 11 in order to provide the company with the time and resources necessary to facilitate an orderly restructuring and position the business for the long term."

Market analysts suggested that the collapse of the firm is likely to create a ripple effect across the chemical industry and some related sectors, further deepening the crisis for other companies in the already distressed economic environment.

In their statement, LyondellBasell Industries said that its U.S. operations and one of its European holding companies have voluntarily filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code.

The company also announced that it has made arrangements for up to $8 billion in debtor-in-possession (DIP) financing to fund continuing operations, which includes $3.25 billion of new funding, $3.25 billion represents a refinancing of certain obligations under LyondellBasell's existing senior secured credit facilities, and $1.515 billion represents replacement of existing working capital facilities.

"During the reorganization period, our goal is for the company to continue its operations and its relationships with customers and suppliers in the normal course," said Trautz.

He blamed the latest step by the company on weakening demand and fluctuating costs of raw material, forcing it to take previous steps to streamline its operations.

"Over the past several months, we announced plans to significantly reduce headcount and also reduced capital expenditures and working capital," he said.

"We have also idled certain facilities and reduced production and processing at others. We are aggressively exploring additional ways to lower our costs and streamline operations in response to a very difficult global economic environment.

The restructuring of the world's third-largest independent chemical company's debt is related to its financing of its $12.7 billion merger a year ago.

Dutch-based chemical company Basell International Holdings had paid that amount to acquire Houston-based Lyondell Chemical Co. in July 2007.

The transaction offer was $48 per share, which was a premium of around 20 percent over Lyondell's stock price at the time.