Banks Ready LyondellBasell TLB
April 30, 2008
Underwriters for Dutch oil refiner LyondellBasell Industries plan to launch a $7.5 billion term loan B next week. Price talk is at Libor plus 375 bps, with an OID in the low 90s, according to a source close to the deal. Bank meetings are scheduled to take place in New York and London.
LyondellBasell’s debt package also consists of a $2 billion term loan A, a $2 billion asset-backed term loan, an $8 billion second-lien term loan and a $1.3 billion German term loan B, according to a company release. However, these tranches are not being marketed at this time, according to the source.
Goldman Sachs, Merrill Lynch and the Royal Bank of Scotland are arranging the debt. Citi, which used to be the lead underwriter, reportedly sold its exposure to the deal when it recently completed a $12 billion sale of its leveraged loans to private equity firms. Citi’s commitment was as much as 20% of the deal.
A Goldman spokesman declined to comment, and calls and emails to representatives at LyondellBasell, Merrill and RBS were not returned by press time.
Basell late last year acquired Lyondell in a 100% debt-financed transaction worth approximately $19 billion. The company’s existing debt includes $100 million in 10.25% notes due 2010, $225 million in a 9.8% bond debenture due 2020, $150 million in 7.55% senior notes due 2026, $615 million in 8.375% subordinate callable bonds due 2015, and €500 million in 8.375% subordinate callable bonds, according to the company release.
Standard & Poor’s last week revised its outlook on LyondellBasell to negative from stable because of the risks associated with weaker economic growth in the U.S. and Europe, as well as significant increases in oil prices. LyondellBasell is rated B+, while its term loans are rated BB and have a recovery rating that anticipates a 90% to 100% retrieval of principal in the event of a default.
LyondellBasell is forecasted to achieve significantly lower profitability in 2008, leading to only modest debt reduction, S&P analysts said. This would prevent the company from creating a financial cushion ahead of a downturn in the petrochemicals industry, which analysts expect in 2009. Furthermore, the ratings on LyondellBasell remain constrained by its high leverage. Debt to Ebitda is about 5.0x, according to S&P.
Offsetting the negative is the fact that skyrocketing prices for oil and related materials will substantially boost LyondellBasell’s working capital in 2008, the analysts said. Additionally, the company continues to yield strong margins on its Latin America refineries and their ability to process heavy Maya crude oil, they added.
Although headquartered in the Netherlands, about 55% of LyondellBasell’s assets are located in the U.S., while other key operations are located in Germany, Italy and France. As of September 30, the company’s revenues were $42.8 billion pro forma, which equates to roughly $5.5 billion Ebitda.
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