Lawyers for Lyondell Chemical, the US unit of LyondellBasell, currently in Chapter 11, have secured a temporary restraining order and preliminary injunction against a group of creditors. The group includes bondholders, who according to the company are seeking to enforce claims so as to trigger protection payments under their credit default swap contracts- a step which could have led to other parts of the group being pushed into insolvency in Europe.
Restructuring specialists believe that investors in CDS, which provide a kind of insurance against corporate default, could cause big disruptions in a wave of complex cross-border corporate restructurings expected this year.
"The threat of CDS holders trying to force companies into an insolvency in order to trigger their recovery rights against their CDS counterparty will almost certainly be an issue in the wave of debt restructurings this year," said Mark Hyde, head of debt restructuring at Clifford Chance, an adviser to LyondellBasell in Europe. Mr Hyde said that in cases where investors attempted such actions, it could undermine chances of completing a successful restructuring. Mr Hyde declined to comment on the specifics of the Lyondell case.
Lyondell Chemical entered Chapter 11 protection from creditors in January after an unsuccessful attempt to restructure its US$26 bln of debt. This triggered pay-outs on CDSs related to bonds issued by the US unit. Few of of the European and Asian companies were kept out of the process and CDS contracts written on bonds of these units were not triggered.