In a closely watched February trial in federal bankruptcy court in Manhattan, chemical giant Solutia Inc. took its lenders to court to prevent them from backing out of a deal to provide it financing to emerge from Chapter 11. On February 26, after a midtrial settlement, Judge Prudence Beatty approved a deal that will permit Solutia to end four years of bankruptcy.
As part of the settlement, the three lender banks-Citigroup Global Markets Inc., Goldman Sachs Credit Partners LP, and Deutsche Bank Securities Inc.-will provide Solutia with the $2 billion they earlier promised.
The product of Monsanto Company's 1997 spin-off of chemical companies, Solutia filed for bankruptcy protection in December 2003. By August 2007, the company had a reorganization plan and began seeking financing. Two months later, the three banks signed commitment letters to provide the necessary funding, and Judge Beatty subsequently approved Solutia's exit plan.
In January, however, the banks asked to be released from their commitment, arguing that the credit crisis represented a material adverse change in the market and that they would be unable to resell the Solutia loans. Solutia filed suit in bankruptcy court, arguing that the October letter required the banks to make good on their pledge.
In its February 6 complaint, Solutia asserted that conditions had not changed between October 2007 and January 2008 and that the downturn was foreseeable when the banks signed on. It also said the banks agreed to provide loans even if they were unable to syndicate them by the February 29 closing deadline.
In response, the banks filed a counterclaim seeking a declaratory judgment that they were not in breach of the commitment letter. The banks claimed that the market material adverse change provision in the letter excused them from funding if a downturn occurred-thought to be the first time that a market MAC had been tested in court.
Judge Beatty ordered an expedited discovery process and a bench trial in February. Lawyers called the CEO and CFO of Solutia to testify, as well as a director in Citigroup's asset-based finance group and the managing director of Goldman Sachs's restructuring group.
Lawyers from both sides say that each made some concessions to reach settlement [see Top of the Docket, left]. The banks' lawyers say that the renegotiated deal made it easier for them to syndicate the loans. Solutia emerged from Chapter 11 on February 28.
For Plaintiff Solutia Inc. (St. Louis)
In-house: Senior vice president, general counsel, and corporate secretary Rosemary Klein and assistant general counsel Miriam Singer.
Kirkland & Ellis: Colin Adams, Thomas Christopher, Richard Cieri, Steven Clemens, Michael Cohen, Jonathan Henes, Walter Lohmann, Christian Nagler, Marimichael Skubel, Jeffrey Zeiger, David Zott, and associates Cindy Chen, Noah Gellner, Albert Kass, Benjamin Schrag, and Claire Sheng. (Lohmann and Skubel are in Washington, D.C.; Zeiger and Zott are in Chicago; the rest are in New York.) Kirkland began representing Solutia in February 2005 for its reorganization. The firm brought in Quinn Emanuel Urquhart Oliver & Hedges in January for the litigation because of conflicts with Citigroup and Goldman Sachs.
Quinn Emanuel Urquhart Oliver & Hedges: Michael Carlinsky, Susheel Kirpalani, Robert Loigman, Dale Oliver, Richard Werder, Jr., and associates Melissa Dalziel and Benjamin Finestone. (Oliver and Dalziel are in Los Angeles; the rest are in New York.) Kirkland referred Solutia to the firm for litigation.
For Defendants Citigroup Global Markets Inc.; Goldman Sachs Credit Partners LP; and Deutsche Bank Securities Inc. (New York)
In-house: At Citigroup: Deputy general counsel and managing director Edward Turan and director of litigation Kathleen McCarthy.
Skadden, Arps, Slate, Meagher & Flom: Thomas Allingham, Jr., Jan Baker, Anthony Clark, Eric Davis, K. Kristine Dunn, Casey Fleck, Seth Jacobson, Lea Kuck, Edward Meehan, J. Gregory Milmoe, Timothy Pohl, Charles Schwartz, and George Zimmerman. (Schwartz is in Houston; Meehan is in Washington, D.C.; Jacobson and Pohl are in Chicago; Dunn and Fleck are in Los Angeles; Allingham, Clark, and Davis are in Wilmington; and the rest are in New York.) The firm represented the three banks in both the financing and the litigation.
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