Solutia exit financing roadblock may jeopardize rights offering

By Caroline Salls

Pittsburgh, Feb. 12 - Solutia Inc. could fail to meet the Feb. 28 plan of reorganization effective date deadline set under its creditor rights offering agreement in light of its dispute over funding of its proposed exit facility, according to an 8-K filed with the Securities and Exchange Commission.

As previously reported, Solutia has filed a complaint against exit lenders Citigroup Global Markets Inc., Goldman Sachs Credit Partners LP and Deutsche Bank Securities Inc. in connection with the lenders' refusal to fund the $2 billion exit facility.

Because of the Feb. 28 deadline set in the rights offering agreement, the U.S. Bankruptcy Court for the Southern District of New York has agreed to hold the trial on the exit financing dispute from Feb. 21 to Feb. 26, but Solutia said there is no guarantee that it will win the dispute, thereby forcing the lenders to fund the exit facility.

In addition, Solutia said it cannot be sure that the court will enter an order in time to force a Feb. 28 closing or that the lenders will not be able to obtain a stay of the court's order, pending appeal.

Solutia's suit asks the court to order the lenders to either provide the exit financing or pay compensatory and punitive damages of no less than $2.25 billion.

In late January, shortly before the Feb. 6 anticipated close of exit financing, the banks notified Solutia they were refusing to provide the facility due to a market MAC, or material adverse change, provision, which they say relieves them of their obligation to provide the financing.

Solutia argues that the state of the syndication market has not changed and that it was already depressed - having tumbled in the summer of 2007 - when the financing commitment was made on Oct. 25.

Solutia, a St. Louis-based manufacturer and provider of performance films, specialty chemicals and nylon products, filed for bankruptcy on Dec. 17, 2003. Its Chapter 11 case number is 03-17949.

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