DIPzilla | South Bay Law Firm
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DIPzilla

DIPzilla

An earlier post here noted the changes in DIP lending occuring in this credit market, and highlighted an October 2008 Reuters article as the jumping-off point for the observation:

In a nutshell, what DIP financing capacity remains in this market has become much more expensive, making acquisition “bridge financing” more attractive and possibly increasing the trend toward Chapter 11 bankruptcy sales.

A recent Bloomberg article (available here) suggests that the dramatically increased pricing and other incentives for DIP loans are bringing lenders back into the market, and cites the recent DIP package extended to Lyondell Chemical as an example.

But what may be just as striking about the Lyondell DIP as its pricing . . . is its size.  Lyondell’s $8 billion proposed DIP – approved on an interim basis January 7 and awaiting final approval – dwarfs all prior DIPs. 

Ever.

Bloomberg’s article summarizes the DIP as comprised of approximately $2.1 billion from new lenders.  Lyondell’s pre-petition lenders “doubled down” with $3.25 billion of new money in order to shore up the same amount of old debt.  Copies of the Interim Order entered January 8, with exhibits, are available here, here, and here.

To get a sense of the dimensions of Lyondell’s DIP, note that it nearly doubles the size of the prior record-holder (Delphi Corp.), based on figures compiled by The Deal’s Bankruptcy Insider and reprinted below:

Largest loans

Rank

Debtor

Date

Commitment ($mill.)

1

Delphi Corp.

5/9/08

$4,354.0

2

LandSource Communities Development LLC

6/8/08

1,185.0

3

Circuit City Stores Inc.

11/10/08

1,100.0

4

Quebecor World Inc.

1/21/08

1,000.0

5

Delphi Corp.

8/6/08

950.0

6

Linens Holding Co.

5/2/08

700.0

7

Mervyn’s Holdings LLC

7/29/08

465.0

8

Lehman Brothers Holdings Inc.

9/17/08

450.0

Pilgrim’s Pride Corp.

12/1/08

450.0

9

Vertis Inc.

7/15/08

380.0

10

Buffets Inc.

1/22/08

285.0


*Includes loans provided by units.
Of recent note: Bank of America Corp. includes Merrill Lynch & Co.; Barclays plc includes Lehman Brothers Inc.; Cerberus Capital Management LP includes GMAC LLC and Chrysler LLC; PNC Financial Services Group Inc. includes National City Corp.; Wells Fargo & Co. includes Wachovia Corp.

Source: www.BankruptcyInsider.com; pipeline.thedeal.com

To get another perspective on the size of Lyondell’s DIP, compare it to the total combined volume of DIP loans made by last year’s top 4 lenders:

Bankruptcy financing

Debtor-in-possession loan metrics, Jan. 1-Dec. 31, 2008

Top lenders by volume*

Rank

Lender

No. of commitments

Volume ($mill.)

1

General Electric Co.

21

$1,960.1

2

Wells Fargo & Co.

38

1,533.7

3

Barclays plc

5

1,128.8

4

Bank of America Corp.

24

1,120.9

5

General Motors Corp.

2

977.3

6

Credit Suisse Group

6

947.0

7

J.P. Morgan Chase & Co.

10

862.2

8

Citigroup Inc.

5

738.9

9

Marathon Asset Management LP

1

592.5

10

Deutsche Bank AG

2

563.0

 

Top lenders by number*

Rank

Lender

Volume ($mill.)

No. of commitments

1

Wells Fargo & Co.

$1,533.7

38

2

Bank of America Corp.

1,120.9

24

3

General Electric Co.

1,960.1

21

4

Cerberus Capital Management LP

412.4

15

5

ING Groep NV

30.3

12

6

J.P. Morgan Chase & Co.

862.2

10

PNC Financial Services Group Inc.

184.6

10

7

UBS AG

276.2

7

CIT Group Inc.

223.2

7

8

Credit Suisse Group

947.0

6

Highland Capital Management LP

129.7

6

 

Finally, it is worth noting that as difficult and expensive as DIP lending has become, Lyondell’s DIP – approved within the first week of the year – gets 2009’s DIP lending season off to a record start.  Lyondell’s commitment alone comprises approximately 40% of 2008’s entire DIP lending volume:

Annual trend

Year

No. of deals

Volume ($bill.)

2004

150

$7.7

2005

164

14.0

2006

218

9.5

2007

232

13.6

2008

328

18.1

 

Bloomberg’s Tiffany Kary quotes several sources who attribute the higher pricing of DIPs to much higher risk: In a word, increased business failure rates and the prospective difficulty of exiting DIP facilities in this cycle are driving prices in this market.

But if the size of Lyondell’s DIP is any indication, it appears that even in this market, there is still plenty of appetite for risk.

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