Judge: Lenders can intervene in Lyondell lawsuit

* Judge lets lenders intervene in Lyondell suit

* Lenders say will own company when it emerges

By Emily Chasan

NEW YORK, Aug 18 (Reuters) - A U.S. bankruptcy judge said on Tuesday that an ad hoc group of senior lenders should be allowed to intervene in a $22 billion lawsuit that Lyondell Chemical Co's [ACCELC.UL] creditors have brought against the banks and advisers that put together the 2007 leveraged buyout of the company by Basell.

At a hearing in U.S. bankruptcy court in Manhattan, Judge Robert Gerber said the creditors had the right to be involved in the lawsuit, which claims the 2007 merger set Lyondell up to fail by leaving it with "unreasonably small capital."

The ad hoc group of senior secured lenders say they are in Lyondell's "fulcrum" creditor group, meaning their debt is expected be converted into equity and they would own the company once it emerges from bankruptcy. Because the lender group occupies that position in the company's capital structure, they argued their interests might differ from other creditors in the case and they needed to be able to represent themselves.

Law firm Davis Polk & Wardwell, on behalf of Citibank (C.N), is representing senior creditors in the case, but the ad hoc group argued their interests may not be exactly aligned because different groups of lenders have different roles in the case.

Lyondell's official committee of unsecured creditors filed the suit last month. The case is proceeding along an accelerated time frame so that Lyondell can stick with its plan to be ready to emerge from bankruptcy later this year or early in 2010.

Members of the ad hoc lender group, which is being represented by law firm Milbank Tweed Hadley & McCloy, include ABN AMRO Bank, Ares Management, Bank of Scotland Plc, DZ Bank AG, Deutsche Zentral-Genossenschaftsbank, private equity firm Kohlberg Kravis Roberts & Co [KKR.UL] and LeverageSource, according to court papers.

The lawsuit is Official Committee of Unsecured Creditors et al v. Citibank et al, U.S. Bankruptcy Court, Southern District of New York, No. 09-01375. The bankruptcy case is In re: Lyondell Chemical Co, U.S. Bankruptcy Court, Southern District of New York, No. 09-10023. (Reporting by Emily Chasan and Chelsea Emery; Editing by Lisa Von Ahn)