In less than 18 months, LyondellBasell Industries AF SCA has gone from creating the world's largest polyolefins firm to a bankruptcy filing for some of its units.
The U.S. operations of Rotterdam, the Netherlands-based LyondellBasell, plus one of its European holding companies, on Jan. 6 filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code. Chief Executive Officer Volker Trautz blamed ``a dramatic softening in demand'' for the company's products and ``unprecedented volatility in raw-material costs.''
Noting that the Rotterdam-based company already has announced plans to reduce head count by 15 percent, cut spending and idle plants, Trautz added: ``We are aggressively exploring additional ways to lower our costs and streamline operations in response to a very difficult global economic environment.''
On Jan. 7, Len Blavatnik — the billionaire Russian investor whose Access Industries firm controls LyondellBasell — said that LyondellBasell ``is still very valuable if the economy recovers.''
``It's a shame for everyone who has lost money,'' Blavatnik told the Financial Times. ``I think there is a chance to recover quite a bit.''
Overall, LyondellBasell listed assets of $33.4 billion and liabilities of $29.9 billion in a filing in U.S. Bankruptcy Court in New York. The firm's annual sales are around $54 billion. LyondellBasell was created in Dec. 2007 when Basell NV paid $19 billion for Lyondell Chemical Co.
The company also announced that, pending bankruptcy court approval, it has made arrangements for up to $8 billion in debtor-in-possession financing to fund continuing operations.
Of this total, $3.25 billion consists 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.
``We have been working collaboratively with our creditors and our equity holder on a financial restructuring that reflects the realities of today's market environment and positions us for the future,'' Trautz said in a news release.
The Chapter 11 filing applies to LyondellBasell's operations in the United States and one of its European holding companies, Basell Germany Holdings GmbH. The U.S. companies filed for Chapter 11 protection in U.S. Bankruptcy Court in New York.
``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,'' Trautz said.
He added that the company's goal is ``to continue its operations and its relationships with customers and suppliers'' during the reorganization. LyondellBasell employs 16,000 worldwide, including 7,800 in the United States.
In a bankruptcy court affidavit, Chief Financial Officer Alan Bigman said that LyondellBasell's industry ``historically has been cyclical, characterized by periods of capacity shortages and high prices alternating with periods of excess capacity and low prices.''
``Recently, demand for most of [LyondellBasell's] products has weakened considerably due to the overall global economic slowdown,'' Bigman said. ``In part, this reflects reduced demand for final products, such as automobiles and construction supplies, for which [the firm's] products are inputs.''
In a separate affidavit, chemicals division President Edward Dineen said that ``the strategic logic'' behind the merger ``was and still is valid.''
``However, the merger was achieved using 100 percent debt financing,'' Dineen said. ``Between this and the retained debt, the combined company began 2008 with a very substantial debt load. In fact, the new debt load was in excess of $23 billion, more than double the combined debt of the individual companies. This resulted in additional interest charges of more than $1.3 billion per year.''
``For the company to reduce its debt load, it was critical to have a strong first year to immediately begin reducing this debt level,'' he added. ``This did not happen for a number of reasons.''
Dineen then cited the run-up and subsequent collapse of crude oil and raw materials prices, the three-week Gulf Coast production shutdown caused by Hurricane Ike and other factors.
LyondellBasell is the world's largest maker of polyolefins. The company is the No. 1 maker of PP in North America and the world. The company also holds the No. 2 slot in both high and low density polyethylene in North America.
LyondellBasell's major North American production sites include Alvin, Bayport and Victoria, Texas; and Lake Charles, La.