Black’s Apollo Said to Be Among Lenders in Lyondell Bankruptcy

By Pierre Paulden and Jonathan Keehner

Jan. 7 (Bloomberg) -- Apollo Management LP, the private- equity firm led by Leon Black, is among the largest creditors of Lyondell Chemical Co., which filed for bankruptcy protection, according to a person with direct knowledge of the matter.

Apollo, based in New York, is now a member of a lending group providing so-called debtor-in-possession financing to fund Lyondell’s operations, according to the person, who asked not to be identified because Apollo’s stake hasn’t been disclosed. Steven Anreder, a spokesman for Apollo, declined to comment. Lyondell spokeswoman Susan Moore didn’t return phone calls seeking comment.

Apollo, TPG Inc. and Blackstone Group LP’s GSO Capital Partners were among buyout firms that bought high-yield, high- risk debt last year at discounted prices. The average high-yield loan price fell 28 cents on the dollar last year to 66.6 cents, according to Standard & Poor’s LCD, as Wall Street firms whittled down $230 billion of loans they’d promised to private-equity firms to fund takeovers before credit markets seized up.

“Apollo may be trying to protect an earlier error in judgment with Lyondell,” said Jonathan Macey, a law professor at Yale University. He said Apollo may be trying to avoid deeper losses by providing bankruptcy financing.

Huntsman Deal

Black’s Apollo lost money last year after agreeing to pay $1 billion to Huntsman Corp. to terminate an acquisition of the chemical maker by its Hexion Specialty Chemicals Inc. unit. Apollo paid Huntsman $425 million in cash and bought $250 million of convertible notes, Woodlands, Texas-based Huntsman said in a statement on Dec. 30. Huntsman also received a $325 million termination fee from Hexion on Dec. 19.

Lyondell Chemical cited waning demand for its products in its bankruptcy filing yesterday in New York. The Houston-based unit of LyondellBasell Industries, a chemical maker based in Rotterdam, the Netherlands, said it arranged for up to $8 billion of debtor-in-possession funding, including $3.25 billion of fresh cash as well as refinanced debt.

Apollo bought Lyondell bank loans from Citigroup in April, bankers familiar with the sale said at the time. Citigroup sold about $1.9 billion of the debt, about a fifth of a $9.45 billion term loan, according to a CreditSights Inc. report on April 29.

Goldman Sachs Group Inc., Merrill Lynch & Co. and the other banks that held the loans offered to sell the debt above 90 cents on the dollar in May, according to a Standard & Poor’s LCD report that month.

Lyondell’s Debt

The chemicals maker has struggled with the debt that financed the $12.3 billion acquisition of Lyondell Chemical Co. by Basell AF in December 2007. That’s sent its U.S. bank loans tumbling to 44.6 cents on the dollar from 60 cents at the end of October, according to London-based pricing service Markit.

Buyout firms that purchased loans may be required to offer bankruptcy financing as banks restrict lending to preserve capital, said Chris Taggert, a New York-based senior loan strategist at CreditSights.

“Debtor-in-possession lending is caught up in the same malaise as credit markets generally,” he said.

Access Industries, which owns LyondellBasell, is providing $750 million of the debtor-in-possession funding. Billionaire Len Blavatnik is founder and chairman of Access.

To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net; Jonathan Keehner in New York jkeehner@bloomberg.net