Solutia Inc. filed a complaint on 6 February 2008 in the US Bankruptcy Court for the Southern District of New York against Citigroup Global Markets Inc., Goldman Sachs Credit Partners L.P., and Deutsc…
Solutia Inc. filed a complaint on 6 February 2008 in the US Bankruptcy Court for the Southern District of New York against Citigroup Global Markets Inc., Goldman Sachs Credit Partners L.P., and Deutsche Bank Securities Inc.. The three banks had executed a firm commitment to fund a USD 2 billion exit financing package for Solutia, but have so far refused to honor the undertaking. Solutia is seeking a court order requiring the banks to meet their commitment and fund Solutia“s exit from bankruptcy. The complaint also asserts that the banks should be stopped from invoking the clause they claim relieves them of their obligation due to their improper conduct and misrepresentations to the company, and further claims that the banks fraudulently induced Solutia to enter into the initial engagement by promising that the financing was firmly committed. Solutia and the banks have agreed that Solutia“s claim to require immediate funding of the USD 2 billion package should be heard by the Court on an expedited basis, with the trial to conclude by the end of February 2008, prior to the expiry of the banks“ commitment. “This is not a “best efforts“ agreement,” said Jeffry N. Quinn, chairman, president and CEO of Solutia Inc. “Solutia agreed to pay the banks an enhanced fee in exchange for their firm commitment to fund the full USD 2 billion exit financing facility – regardless of the results of the syndication process. We are extremely disappointed by their refusal to meet this commitment and have no choice but to pursue all of our legal remedies”. On 25 October 2007 , the banks executed a firm commitment to fund a USD 2 billion exit financing package for Solutia. These substantial custom credit facilities and arrangements were specifically tailored to facilitate Solutia“s prompt emergence from Chapter 11. On 20 November 2007, the bankruptcy court approved the exit financing package. Nine days later, in reliance on the banks“ firm lending commitment, the court found the plan of reorganization to be feasible and confirmed the plan. However, in late January 2008, shortly before the anticipated closing of the exit facility and Solutia“s long-awaited emergence from Chapter 11, the banks notified Solutia that they were refusing to provide the funding, citing a so-called “market MAC” provision in their commitment letter and asserting that there has been a change in the markets since entering into the commitment. “It is a well-documented fact that the ongoing conditions in the credit markets began in the summer of 2007,” said Mr. Quinn. “Well before the banks committed to Solutia“s exit financing, they stated in public filings and through professional advice to Solutia that the credit markets were in disarray, and that the credit crisis would continue for months to come. Despite their concerns and negative outlook, the banks entered into a firm commitment to provide Solutia with this exit financing. The willingness of these banks to offer committed financing that was not subject to a successful syndication was a major factor in deciding to award them this business. ” Mr. Quinn added, “Solutia is ready to emerge from Chapter 11. We have successfully repositioned our company, we have confirmed a plan of reorganization that brings significant value to our constituents, and our businesses are performing well. We now look to the banks to meet their commitment.”