Huntsman reaches $1.7B settlement with European lenders over Hexion deal

David Yates Jun. 24, 2009, 8:21am

Judge Fred Edwards

CONROE – Lenders were perhaps given yet another reason not to lend Tuesday, June 22, when attorneys for the Huntsman Corp. and European banks announced the parties had reached a $1.7 billion settlement.

For the last two years, Huntsman had been waging a legal battle against Credit Suisse and Deutsche Bank after the lenders backed out of a decision to finance a $6.5 billion buyout of Huntsman by Hexion Specialty Chemicals.

Under the terms of the settlement agreement, the Banks are providing the following to Huntsman:

  • $620 million in cash;
  • $500 million senior secured term loan financing, 7 year term at LIBOR + 2.25 percent;
  • $600 million unsecured note financing, 7 year term at 5.5 percent; and
  • $12 million reimbursement of litigation costs.

    Critics of the settlement argue the litigation could blossom into a landmark case and serve to ward off future lenders who might otherwise consider funding a multi-billion dollar merger.

    The case went to trial last week Montgomery County, where Huntsman has its headquarters, in the Ninth District Court of Judge Fred Edwards.

    "This settlement with the banks marks a very successful conclusion to this litigation for the company and all of its stakeholders," said Peter Huntsman, the oil company's president and CEO, in a press release.

    "The cash and financing will enhance our already enviable cash position to more than approximately $1.7 billion and provide us much greater flexibility as we manage our business."

    The Hexion deal with Huntsman was forged in 2007 and set to close in October 2008. But in June of last year, Credit Suisse and Deutsche Bank put a halt to the transaction, expressing doubts about Huntsman's solvency after the company hit a slump in the fourth quarter of '08.

    Huntsman sued Apollo Management, Hexion's parent company, in Montgomery County, seeking more than $3 billion in damages.

    Hexion sued Huntsman in Delaware to escape the agreement, claiming the company could not provide a certificate of solvency to bankers at closing. Hexion settled the suit for $1 billion.

    Shortly after that, Huntsman sued Credit Suisse and Deutsche Bank in Montgomery County.

    The cases were consolidated by Judge Edwards, who ruled that the banks had no right to sue Huntsman.

    The banks petitioned the Texas Ninth District Court of Appeals in Beaumont to reverse Edwards, arguing that he should let a New York court address the issue of solvency.

    Appellate justices said the solvency question could not be answered by the court, and found that Hexion may have been behind the lenders' decision to back out of the deal.

    According to trial testimony, much of the controversy over the financial numbers was based on handshake deals and verbal assurances.

    Correspondent Steve Korris and Editor Marilyn Tennissen contributed to this story.

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