Multiple draw and revolving loan lenders and counsel can find three important lessons in the 84 page trial ruling after eight years of litigation, three federal judges, and more than five interesting opinions. See Weisfelner, Trustee v. Blavatnik (In re Lyondell Chem. Co.), 567 B.R. 55 (Bankr. S.D.N.Y. 2017). First, the conditions precedent to further funding should be independent, robust, and not a simple absence of a Default (or a circumstance that with notice or passage of time would be a Default). Second, at least for this company and this loan document, a financial decline into insolvency was not a material adverse change, so keep the concepts separate in both the conditions to funding and the Events of Default. Consider defining a material adverse change to include the fall into insolvency. Third, a contractual limitation on damages in a loan agreement should give some comfort in declining a borrower’s request for a $750 million draw on the eve of bankruptcy.
In its December 2007 LBO, Lyondell borrowed approximately $21 billion on a secured basis, paid out $12.5 billion to shareholders, and contracted for a standby $750 million unsecured revolving line of credit from a new shareholder affiliate. After the collapse of a 30-story crane closed its refinery, two hurricanes hit, raw materials prices increased dramatically, and the Great Recession froze $175 million in a money market fund, Lyondell consulted bankruptcy professionals and sought forbearance from secured lenders. After preliminary notice of a need for $400 million, on December 30, 2008, Lyondell requested a full advance of $750 million. The affiliate refused. Chapter 11 cases were filed on January 6, 2009. Weisfelner, Trustee v. Blavatnik (In re Lyondell Chem. Co.), 544 B.R. 75, 83 (Bankr. S.D.N.Y. 2016). The professionals eagerly pursued the lender liability claims.
The lender defended the claim with the loan agreement’s material adverse change...
