Bankruptcy

Solutia Solution

By John Pottow

I didn't want Credit Slips readers to miss the settlement of the Solutia lawsuit that occurred at the end of February.

Solutia sued its consortium of DIP lenders for trying to back out of a $2.05 billion exit financing loan.  The justification for the weaseling, said the banks, was that the credit markets had gotten tough(!) and that it would be hard to syndicate and/or sell the DIP loan(!!), and so this was the sort of "material adverse change" that would allow rescission of the commitment under the contract(!!!).

I'd like to say this is consensual resolution of a contested matter, but I noticed that the "settlement" apparently involved the banks ponying up $50 million more in funds -- which sounds like someone got scared when Solutia said it'd be happy to have a bankruptcy judge weigh in and set a precedent.  There are some rosy press releases from Citigroup, and Solutia has happily emerged from 11, but there's more to this than meets the eye.  This would have been a watershed precedent -- either way -- in a turbulent credit market.  Smells like the banks didn't like their prospects here.  But the audacity of their (attempted) repudiation of the exit financing commitment on the "tough market" defense suggests (in addition to chutzpah) that the credit crunch really is proving tough all 'round.

Full post as published by Credit Slips on March 12, 2008 (boomark / email).