Fraudulent Conveyance Analysis in Lyondell Bankruptcy

The Situation

On 16 July 2007, Lyondell Chemical Company ("Lyondell"), a chemicals manufacturer and petroleum refiner, and Basell AF S.C.A. ("Basell") entered into a merger agreement. When the all-cash merger closed on 20 December 2007, Lyondell became a wholly owned indirect subsidiary of LyondellBasell Industries AF S.C.A. (“LBI”), creating one of the world's largest polymers, petrochemicals, and fuels companies. In order to facilitate the merger, Lyondell and some of its affiliates and subsidiaries (the "Debtors") entered into debt facilities representing a maximum of $22.6 billion in financing. On 6 January 2009, Lyondell and certain of its affiliates and subsidiaries filed for Chapter 11 protection in the Bankruptcy Court in the Southern District of New York. On 24 April 2009, LBI was added to the Debtors’ Chapter 11 filing. Following the bankruptcy, the plaintiff, the Official Committee of Unsecured Creditors (the "Committee"), filed a fraudulent conveyance lawsuit against, among others, LBI and its financing parties alleging that, at the time of the merger, (i) LBI was insolvent because the stated value of its liabilities exceeded the fair value of its assets; (ii) LBI was insufficiently capitalized to fund its operations through a downturn; and (iii) the bankruptcy was foreseeable.

NERA's Role

NERA was retained by LBI to conduct an independent review of the Committee's claims and to conduct an independent evaluation of the findings detailed in affirmative and rebuttal expert reports filed by the plaintiff’s and defendants' experts. Specifically, NERA was asked to evaluate: the reasonableness of EBITDA projections offered by Basell and Lyondell management for the period 2007-2011 and relied upon at the time of the merger; the solvency and capital adequacy of LBI at the time of the merger; and the foreseeability of certain global economic, market, industry, and LBI-specific events that preceded LBI’s January 2009 bankruptcy. NERA Senior Vice President Dr. Ramsey Shehadeh conducted economic research to address the first issue, and Senior Vice President Dr. Faten Sabry did a study of capital markets’ reactions to the LBO from its announcement through the actual closing. On 2 December 2009, NERA’s experts presented their findings to LBI. Ultimately, NERA submitted two declarations to the United States Bankruptcy Court, Southern District of New York and Dr. Shehadeh provided deposition testimony in February 2010.

The Result

On 16 February 2010, LBI announced that it had agreed to settlement terms with the Committee to pave the way to LBI's emergence from Chapter 11. NERA's work aided LBI substantially in consensually resolving a major dispute in one of the most contentious recent Chapter 11 cases. For more details, please download the attached Case Closed summary.