> Business Enterprise Valuations

in Chapter 11 Reorganizations
and Financial Restructurings
> Featured Restructuring Case Studies

Parent of Debtor
LyondellBasell Industries AF S.C.A. (“LyondellBasell”), headquartered in the
Netherlands, is one of the world’s largest polymers, petrochemicals and fuels
companies.
Chapter 11 Reorganization
$8 billion DIP Financing Bankruptcy Filing Description
Valuation expert to the Debtor’s counsel and The US operations of LyondellBasell (including Lyondell Chemical Company and
provided expert testimony in the United States Equistar Chemicals, LP) and Basell Germany Holding GmbH (“Lyondell Chemical
Bankruptcy Court for the Southern District Company et al,” or the “Debtor”) voluntarily filed to reorganize under Chapter 11
of New York regarding the going-concern
of the U.S. Bankruptcy Code in order to restructure their debt obligations.
business enterprise valuation of Lyondell
Chemical Company et al
Our Role
> RESTRUCTURING Robert A. Bartell, CFA and Managing Director of Duff & Phelps served as the
independent valuation expert on behalf of the Debtor’s legal counsel, Cadwalader,
Wickersham and Taft LLP. 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.

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.

The Debtor
Arlington Hospitality, Inc., is a hotel development and management company that
develops, operates and sells mid-scale hotels, under the name AmeriHost Inn. In
August 2005, the Company filed for Chapter 11 bankruptcy in the Northern District
of Illinois (Chicago).

Our Role
Section 363 Asset Sale Chanin Capital partners, a Duff & Phelps Company, was retained in July 2005 to provide
strategic alternatives to the Debtor’s Board of Directors. In this role, our restructuring
Financial advisor to Arlington Hospitality
experts assisted the Company with: extensive due diligence and financial analysis; the
in connection with the sale of substantially
all its assets to Sunburst Hospitality creation and dissemination of marketing materials; provided expert testimony; secured
debtor-in-possession financing; secured a stalking horse bidder; and contacted over
> RESTRUCTURING 150 potential purchasers and assisted in the sale of substantially all of its assets through
an auction proceeding.

Result
Highlights of the auction:
• Chanin ran a successful 2-day auction with secured lenders receiving 100%
recovery.
• Increased unsecured creditor proceeds by over 230% from the initial stalking
horse bid.
• Unsecured creditors’ recovery was over 50%.

Chanin successfully completed the sale of substantially all of the Debtor’s assets to
Sunburst Hospitality through a 363 process.
> 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, companies are encouraged to approach equity holders (e.g., sponsors)
and existing senior secured lenders for additional funds. The “roll-up” allows certain lenders to provide additional funds,
through the DIP loan, while allowing the lender to move pre-petition debt ahead of (or “Prime”) existing lenders. By far, the
most important and difficult requirement in connection with priming the existing lenders is the establishment of adequate
protection. In essence, adequate protection protects a pre-existing lender against a decrease in the value of its collateral.

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”).
The relationship, expressed as a percentage, between the equity cushion and the primed secured debt is a key metric to assess
adequate protection. 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 $6.0
billion that requires a new post-petition DIP loan of $2.0 billion.

Equity Cushion Without Roll-up

(millions)
Business Enterprise Value $ 6,000

Step 1: Senior Secured Debt

Senior Secured Revolving Credit Facility 1,000
Establish a BEV
Senior Secured Term Loan 2,000
Total Senior Secured Debt 3,000 3,000 (A)
Step: 2 Unsecured Mezzanine Debt 825
Calculate the Total Pre-Petition Debt Obligations $ 3,825
post-petition debt
Total Pre-Petition Debt Obligations $ 3,825
Plus: DIP Loan 2,000
Step 3: Total Post-Petition Debt $ 5,825
Assess adequate
Business Enterprise Value $ 6,000
protection with
Less: Total Post-Petition Debt (5,825)
equity cushion Total Equity Cushion $ 175 (B)

Equity Cushion on Primed Secured Debt 6% (B/A)

In this example, the calculation of 6% may or may not be deemed sufficient to meet the adequate protection of the lenders.

Including a Roll-up by a Senior Secured Lender

By allowing the existing pre-petition lenders to participate in the DIP financing, the total post-petition debt to be Primed
is reduced. For our example, the DIP loan provides for a one-for-one roll-up of $2.0 billion to be funded by a senior secured
lender. By allowing the lenders to roll-up, the DIP loan amount increases, however, the total amount of Primed debt is
reduced. Consequently, equity cushion improves:

DIP Loan $ 2,000 Pre-Petition Debt to be Primed $ 3,000

Plus: Roll-up of Pre-Petition Debt 2,000 Less: Roll-up of Pre-Petition Debt (2,000)
Total DIP Obligation $ 4,000 Total Amount of Primed Debt $ 1,000 (C)

While total post-petition debt remains the same, the reduction in primed debt results in a dramatically higher equity cushion.
As shown below:

Total DIP Obligation $ 4,000 BEV $ 6,000

Plus: Total Amount of Primed Debt 1,000 Less: Total Post-Petition Debt (5,825)
Plus: Unsecured Mezzanine 825 Total Equity Cushion $ 175 (D)
Total Post-Petition Debt $ 5,825

Equity Cushion on Primed Secured Debt: 18% (D/C)

Now, more than ever, the roll-up intensifies the debate as to whether or not there is adequate protection. 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.
Contacts
Robert A. Bartell, CFA
Managing Director
Duff & Phelps
+1 312 697 4654
bob.bartell@duffandphelps.com

Skip Victor
Senior Managing Director
Chanin Capital Partners, a Duff & Phelps company
+1 310 445 4010
svictor@chanin.com

About Duff & Phelps

As a leading global independent provider of financial advisory and investment banking services,
Duff & Phelps delivers trusted advice to our clients principally in the areas of valuation, transactions, financial
restructuring, dispute and taxation. Our world class capabilities and resources, combined with an agile and
responsive delivery, distinguish our clients’ experience in working with us. With more than 1,200 employees
serving clients worldwide through offices in North America, Europe and Asia, Duff & Phelps is committed to
fulfilling its mission to protect, recover and maximize value for our clients. Investment banking services are
provided by Duff & Phelps Securities, LLC. Duff & Phelps Securities Ltd. is authorized and regulated by the
Financial Services Authority. Restructuring advisory services are provided by Chanin Capital Partners,
a Duff & Phelps company. (NYSE: DUF)

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