LyondellBassell Trial to Focus on LBO -- Week Ahead

By Lillian Rizzo

Years after LyondellBasell Industries AF exited bankruptcy, its creditors are getting another shot at a payout.

On Monday, U.S. Bankruptcy Court Judge Martin Glenn will hear opening arguments in trial over a $1.2 billion-plus clawback lawsuit brought for the benefit of the chemical giant's creditors.

Prior to seeking chapter 11 protection in the midst of the global financial downturn, LyondellBasell was formed through a nearly $13 billion leveraged buyout. In 2007, Luxembourg-based Basell AF S.C.A., then controlled by Russian-born investor Leonard Blavatnik's Access Industries Inc., acquired Texas-based Lyondell Chemical Co.

The company filed for bankruptcy in 2009 and emerged in 2010 after cutting about $5 billion from its debt load and with Access Industries as a significant stakeholder.

In connection with the restructuring, a trust was created to pursue lawsuits that could ultimately increase creditors' recoveries. Among the lawsuits filed by litigation trustee and Brown Rudnick attorney Ed Weisfelner is one related to the LBO against Mr. Blavatnik, individuals associated with Access and companies with ties to Mr. Blavatnik.

Creditors are alleging the buyout was made in bad faith on the basis of inflated Lyondell financial projections, which they say drove the buyout price higher.

Lawyers for Mr. Weisfelner plan to argue that the companies knew the shaky nature of the leveraged buyout in 2007 and "that Lyondell was insolvent" once the deal closed that December, court papers show. The creditors' focus will be on Lyondell's pre-bankruptcy balance sheet, capital structure and financial projections.

The lawsuit looks to recover more than $1.2 billion in payments allegedly made with the intention of defrauding the post-LBO company's creditors. The lawsuit also seeks to recover another $128 million in financial advisory and management fees, damages for alleged breaches of fiduciary duty and other payments.

Namely, the creditors will look to prove that Mr. Blavatnik orchestrated payments for his benefit and that of his companies, according to court papers.

Mr. Blavatnik and the other defendants' lawyers argue there was no way of knowing it was the wrong time for a leveraged buyout "on the eve of that unprecedented and unforeseeable global dislocation," according to court papers.

"To suggest [LyondellBasell] was foreseeably 'doomed to fail' in 2007, is, simply put, to rewrite history," they add. "No evidence will suggest that a single participant in the transaction expected [the company] to fail." Court papers point out that shareholders and financial institutions invested and "risked" billions of dollars in the merger with the expectation of the deal's success.

"Among the many problems with these tales is the trustee's utter failure to address the impact of the Great Recession on [LyondellBasell]," the defendants' lawyers argue.

Court papers add that the creditors' trustee "cannot plausibly explain why a long-term equity investor like Blavatnik would put Basell at risk to benefit Lyondell shareholders, a fact recognized by the district court."

-Jacqueline Palank contributed to this article.

Write to Lillian Rizzo at Lillian.Rizzo@wsj.com

(END) Dow Jones Newswires

October 14, 2016 16:01 ET (20:01 GMT)

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