Chemtura committee files suit to avoid transfers, benefit creditors

By Caroline Salls

Pittsburgh, July 29 - Chemtura Corp.'s official committee of unsecured creditors filed a lawsuit on Wednesday against pre-bankruptcy lender agent Citibank, NA in an effort to recover preferential transfers, including at least $6 million in cash payments made to the agent, according to a filing with the U.S. Bankruptcy Court for the Southern District of New York.

The committee is also looking to recover liens and security interests on all of Chemtura's inventory that were granted to the agent in December 2008 and a lien and security interest in ownership interests of non-debtor Chemtura Receivables LLC granted to the agent in February.

According to the complaint, avoidance of the preferential transfers will benefit the company's estates and its unsecured creditors by stripping the purported liens on Chemtura's inventory and the capital stock of Chemtura Receivables, unwinding $86.5 million of rolled-up pre-bankruptcy debt under the company's final debtor-in-possession facility order and recovering at least $6 million in cash.

The committee said the transfer of the liens and the preferential cash payment are avoidable because they will enable the pre-bankruptcy lenders to receive more on account of their claims than they otherwise would receive if the company had filed for Chapter 7 bankruptcy and the inventory liens not been granted.

The committee is also asking the court to declare that Chemtura's pre-bankruptcy credit facility constitutes a single undersecured credit facility and not two separate facilities, as the agent claims.

The lender agent contends that one of the pre-bankruptcy facilities is fully secured by the stock of the company's first-tier domestic and foreign subsidiaries and that the other is completely unsecured, according to the lawsuit.

In addition, the committee is asking the court to cap the amount of the pre-bankruptcy credit facility debt that is entitled to the benefit of collateral at $38.86 million to $46.1 million and that the collateral securing the credit facility must only be allocated among the letter-of-credit and revolver borrowings outstanding as of the date of the cap.

The committee said these declarations could provide alternative or additional bases of recovery by requiring the disgorgement of putative adequate protection payments to the lender agent, the unwinding of the pre-bankruptcy credit facility and the release of tens of millions of dollars for distribution to unsecured creditors.

Chemtura is a Middlebury, Conn.-based manufacturer and seller of specialty chemicals and polymer products that filed for bankruptcy on March 18. Its Chapter 11 case number is 09-11233.

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