Chemical giant LyondellBasell Industries was preparing to file for bankruptcy protection, just a year after the blockbuster merger that made it one of the world's biggest chemical makers.
The move comes as the Dutch company is reeling from plummeting sales and crushing debts and after a review of restructuring options in recent days landed on Chapter 11.
The company, with major operations in Houston, was set to make the filing in U.S. Bankruptcy Court in the Southern District of New York, and include only its U.S. businesses and none of its European operations.
In the filing, the company is expected to list assets in excess of $33 billion and liabilities of nearly $30 billion. Company officials declined to comment, but people familiar with the firm said a filing was imminent as of late Monday night.
It was not immediately clear what the filing will mean for the company's 4,500 employees in the Houston area, who work at a business office downtown, more than half a dozen chemical plants and a huge oil refinery at the Houston Ship Channel.
The bankruptcy is yet another troubling sign for the embattled chemical industry and brings more bad news to Texas, where other major chemical makers have recently cut production and jobs.
Though LyondellBasell is headquartered in Rotterdam, The Netherlands, U.S. bankruptcy law allows foreign companies to file for Chapter 11 if they have operations here.
Bankruptcy will enable LyondellBasell to continue operating, under court supervision, as it crafts a reorganization plan.
At press time Monday, it was still not clear how much banks had committed in debtor-in-possession financing to LyondellBasell's turnaround efforts in Chapter 11.
A tough year
The filing would come after a difficult year for the chemical industry. In 2008, record oil and natural gas costs ate into profits, credit markets tightened and a global recession gutted demand for everything from auto parts to building supplies — all heavy users of plastics, nylons and other products derived from chemicals.
Dow, BASF, DuPont and other major chemical producers have responded by slashing production at plants worldwide and cutting thousands of full-time jobs and contractor positions.
In November, LyondellBasell announced plans to cut 15 percent of its global workforce of 16,000 employees and reduce output at factories worldwide, including sites on the Gulf Coast. But in bankruptcy, the company may be forced to go further.
On Monday evening, the United Steelworkers was preparing "whatever legal steps necessary" to protect its roughly 300 workers at the company's refinery, union spokeswoman Lynne Baker said.
Charlie Singletary, business manager of the International Union of Operating Engineers, Local 564, said his union also was preparing to respond on behalf of its 170 company workers in Texas City.
Carrying debt
LyondellBasell's current troubles can be traced in part to the blockbuster merger that spawned the company.
In July 2007, Dutch chemical company Basell International Holdings — a division of privately held New York conglomerate Access Industries — agreed to pay $12.7 billion for Houston-based Lyondell Chemical Co. The offer of $48 a share represented a 20 percent premium over Lyondell's stock price at the time. With debt assumed in the deal, the total price came in close to $20 billion.
Today, the company is still carrying nearly $30 billion in debt, but a swift downturn in business has made it difficult for the company to meet even its basic liquidity needs.
Wall Street credit-rating agencies began raising red flags last week, downgrading the company's debt after LyondellBasell postponed $280 million in fee and interest payments due to lenders. LyondellBasell had negotiated with banks to extend the deadline to Jan. 4.
LyondellBasell's major lenders include Merrill Lynch, Goldman Sachs, Citigroup and UBS Securities LLC.
More bad news came last week when LyondellBasell said an affiliate of its parent company had denied it access to a $750 million line of credit, adding to liquidity constraints.
Even so, Carl Blake, an industry analyst with New York-based Gimme Credit, said the company still should have had ample reserves to avoid a bankruptcy filing.
As of the end of September, the company had $1.7 billion available to meet business needs, he said.
But industry headwinds proved especially brutal in the final months of 2008.
"What's happened is the cycle has come faster and looks to be more extended than it normally would be," said Blake. "So they did get hit hard."
Andrew Brady, analyst with CreditSights, blames management who he said "clearly underestimated the timing and severity of the downturn."
Today, the huge debt-financed acquisition of Lyondell looks "more like a rock on the foot of a drowning victim," he said in a report Monday.
Jan 6, 2009
