> Business Enterprise Valuations in Chapter 11 Reorganizations and Financial Restructurings

S. petrochemicals and fuels companies. CFA and Managing Director of Duff & Phelps served as the independent valuation expert on behalf of the Debtor’s legal counsel. Inc. Chapter 11 Reorganization $8 billion DIP Financing Valuation expert to the Debtor’s counsel and provided expert testimony in the United States Bankruptcy Court for the Southern District of New York regarding the going-concern business enterprise valuation of Lyondell Chemical Company et al Bankruptcy Filing Description The US operations of LyondellBasell (including Lyondell Chemical Company and Equistar Chemicals. the creation and dissemination of marketing materials. Section 363 Asset Sale Financial advisor to Arlington Hospitality in connection with the sale of substantially all its assets to Sunburst Hospitality > RESTRUCTURING Our Role Chanin Capital partners. operates and sells mid-scale hotels. a Duff & Phelps Company. our restructuring experts assisted the Company with: extensive due diligence and financial analysis. LP) and Basell Germany Holding GmbH (“Lyondell Chemical Company et al. secured debtor-in-possession financing. > RESTRUCTURING Result The United States Bankruptcy Court for the Southern District of New York approved the terms for Debtor’s approximately $8 billion in debtor-in-possession financing to fund continuing operations. • Increased unsecured creditor proceeds by over 230% from the initial stalking horse bid. and contacted over 150 potential purchasers and assisted in the sale of substantially all of its assets through an auction proceeding. under the name AmeriHost Inn. Bartell. secured a stalking horse bidder. Bankruptcy Code in order to restructure their debt obligations. was retained in July 2005 to provide strategic alternatives to the Debtor’s Board of Directors. • Unsecured creditors’ recovery was over 50%. Duff & Phelps provided expert valuation services in support of the Debtor’s motion for authorization to obtain secured post-petition financing on an interim and final basis as well as the finding of adequate protection for pre-petition secured lenders. is one of the world’s largest polymers. . Our Role Robert A. the Company filed for Chapter 11 bankruptcy in the Northern District of Illinois (Chicago).C. headquartered in the Netherlands.A. is a hotel development and management company that develops. The Debtor Arlington Hospitality.” or the “Debtor”) voluntarily filed to reorganize under Chapter 11 of the U. (“LyondellBasell”).. In this role. Wickersham and Taft LLP. In August 2005. Cadwalader. Result Highlights of the auction: • Chanin ran a successful 2-day auction with secured lenders receiving 100% recovery. provided expert testimony. Chanin successfully completed the sale of substantially all of the Debtor’s assets to Sunburst Hospitality through a 363 process.> Featured Restructuring Case Studies Parent of Debtor LyondellBasell Industries AF S.

. more than ever. Including a Roll-up by a Senior Secured Lender By allowing the existing pre-petition lenders to participate in the DIP financing. sponsors) and existing senior secured lenders for additional funds.825) 175 (D) 18% (D/C) Equity Cushion on Primed Secured Debt: Now. the reduction in primed debt results in a dramatically higher equity cushion. .000 1.825 BEV Less: Total Post-Petition Debt Total Equity Cushion $ $ 6. A simple example demonstrates the benefits of using a roll-up structure: The following table provides a simple illustrative example for calculating the equity cushion of a company with a BEV of $6.825 2.0 billion. By allowing the lenders to roll-up.000 (A) 825 $ 3.000 3. through the DIP loan. The “roll-up” allows certain lenders to provide additional funds. expressed as a percentage.> Basis for Roll-up Financing Given the frozen credit market’s limited availability of post-petition DIP financing and the rigorous challenges in support of or against approval of debtor-in-possession (“DIP”) loans.000 1. the total post-petition debt to be Primed is reduced. Equity Cushion Without Roll-up (millions) Business Enterprise Value $ 6.g. the most important and difficult requirement in connection with priming the existing lenders is the establishment of adequate protection. between the equity cushion and the primed secured debt is a key metric to assess adequate protection. companies are encouraged to approach equity holders (e. Duff & Phelps is well positioned to provide to a debtor or creditor an independent BEV and expert testimony to assess the adequate protection and equity cushion requirements related to the DIP facility. the DIP loan amount increases.000 825 $ 5. The relationship. equity cushion improves: DIP Loan Plus: Roll-up of Pre-Petition Debt Total DIP Obligation $ 2. The most common method to establish adequate protection is to demonstrate the existence of an “equity cushion” which is calculated as the remaining equity after the total post-petition debt is subtracted from the business enterprise value (“BEV”).000 (5. the roll-up intensifies the debate as to whether or not there is adequate protection.000 $ 5.825 $ 3.825) $ 175 (B) 6% (B/A) Step 3: Assess adequate protection with equity cushion In this example.000 (C) $ 4.000) Total Amount of Primed Debt $ 1. the calculation of 6% may or may not be deemed sufficient to meet the adequate protection of the lenders. By far.000 2.000 Pre-Petition Debt to be Primed $ 3. As shown below: Total DIP Obligation Plus: Total Amount of Primed Debt Plus: Unsecured Mezzanine Total Post-Petition Debt $ 4. Consequently.000 2. while allowing the lender to move pre-petition debt ahead of (or “Prime”) existing lenders.0 billion that requires a new post-petition DIP loan of $2. In essence. the total amount of Primed debt is reduced.000 (5.000 Less: Roll-up of Pre-Petition Debt (2.000 While total post-petition debt remains the same. adequate protection protects a pre-existing lender against a decrease in the value of its collateral.0 billion to be funded by a senior secured lender. For our example. however.000 Step 1: Establish a BEV Step: 2 Calculate the post-petition debt Senior Secured Debt Senior Secured Revolving Credit Facility Senior Secured Term Loan Total Senior Secured Debt Unsecured Mezzanine Debt Total Pre-Petition Debt Obligations Total Pre-Petition Debt Obligations Plus: DIP Loan Total Post-Petition Debt Business Enterprise Value Less: Total Post-Petition Debt Total Equity Cushion Equity Cushion on Primed Secured Debt 3.825 $ 6. the DIP loan provides for a one-for-one roll-up of $2.

DP091017 . Our world class capabilities and resources. Restructuring advisory services are provided by Chanin Capital Partners. recover and maximize value for our clients. transactions. Europe and Asia. Duff & Phelps delivers trusted advice to our clients principally in the areas of valuation. (NYSE: DUF) duffandphelps.com Skip Victor Senior Managing Director Chanin Capital Partners.com About Duff & Phelps As a leading global independent provider of financial advisory and investment banking services. CFA Managing Director Duff & Phelps +1 312 697 4654 bob.com Copyright © 2009 Duff & Phelps Corporation. is authorized and regulated by the Financial Services Authority. financial restructuring.200 employees serving clients worldwide through offices in North America. With more than 1. LLC.bartell@duffandphelps. a Duff & Phelps company. a Duff & Phelps company +1 310 445 4010 svictor@chanin. Duff & Phelps Securities Ltd. dispute and taxation. Investment banking services are provided by Duff & Phelps Securities.Contacts Robert A. Bartell. distinguish our clients’ experience in working with us. Duff & Phelps is committed to fulfilling its mission to protect. combined with an agile and responsive delivery.

Sign up to vote on this title
UsefulNot useful