Jun. 27--Dutch chemical giant Basell's $12.7 billion buyout of Houston's Lyondell Chemical Co. went forward in 2007 despite repeated warnings from the highest levels of Basell and its affiliates that the deal was too risky, according to sealed court documents obtained by the Chronicle.

A year later, in a move that was "entirely foreseeable," the merged company filed for bankruptcy, buried in debt, starved for cash and overtaken by downturns in the chemical and refining industries Wall Street had seen coming, LyondellBasell creditors claim in a recently filed suit that includes the documents.

Internal skeptics of the merger feared the 100 percent debt-financed deal would saddle the new company with billions in debt and worried that financial projections about the combined company were intentionally inflated to help sell the deal to lenders, the sealed documents show.

Yet those concerns fell on deaf ears as the deal built momentum and as chief architects of the merger focused more on the millions they stood to gain if the deal was completed than on the long-term health of the new company, the documents claim.

The creditors' suit was attached to a motion filed last week in LyondellBasell's massive Chapter 11 case in U.S. Bankruptcy Court in the Southern District of New York. The Chronicle obtained copies of the unredacted version.

The motion asks Bankruptcy Judge Robert Gerber for permission to sue Leonard Blavatnik, chairman of Access Industries, a private equity firm that owns Basell, and itsaffiliates, as well as Wall Street banks that signed off on the merger that created LyondellBasell. It has more than 4,000 employees and seven manufacturing plants in the Houston area.

"Unsecured creditors were harmed by the way this merger was put together," said John Elstad, a lawyer for the creditors with Brown Rutnick in Boston.

He otherwise declined to comment on allegations made in the redacted sections, which are still under court seal, or about broader claims in the lawsuit.

LyondellBasell lawyer Deryck Palmer also declined to comment, except to note that allegations in the suit are "only one side of the story."

New details

A July 21 hearing has been set to determine if the lawsuit will go forward and whether sealed portions of the 140-page document will be made public.

Those redacted portions, now hidden by solid black lines in public court documents, provide new details about events leading up to the July 2007 merger agreement between Basell and Lyondell, the closing of the transaction several months later and the subsequent bankruptcy filing a year after that.