Hexion Sues Banks To Try To Fund Huntsman Deal

NEW YORK (Reuters) – A unit of private equity firm Apollo Management LP [APOLO.UL] has sued two banks that refused to finance its $6.5 billion leveraged buyout of chemical company Huntsman Corp (HUN.N).

Apollo unit Hexion Specialty Chemicals sued Credit Suisse Group AG (CSGN.VX:) and Deutsche Bank AG (DBKGn.DE) on Wednesday in the Supreme Court of the State of New York, alleging the banks breached their obligations under the financing commitment letter for the deal.

The firm said it hopes the court will compel the banks to fund the merger.

In the lawsuit, Hexion argued that the commitment letter from the bannks gives them “virtually no ‘outs’ .. including no outs based on changes in circumstances in the economy generally, interest rates, debt markets, or the business of Hexion or Huntsman.”

Apollo agreed to buy Huntsman through its Hexion unit in the summer of 2007. The deal has been on the brink of collapse for months after Hexion sued Huntsman in June, arguing the combined company would be insolvent. Huntsman countersued.

Recent court rulings have gone in Huntsman’s favor and seemed to put the deal back on track.

In September, a Delaware court ordered Apollo to honor the terms of its agreement to acquire Huntsman, saying that, if the private equity firm refused to close the deal, it could be liable to Huntsman for damages beyond a $325 million break-up fee.

A Texas court also backed Huntsman by preventing Credit Suisse and Deutsche Bank from filing any lawsuit alleging the combination of Hexion and Huntsman would be insolvent.

But Credit Suisse and Deutsche Bank said in a statement on Tuesday they were unwilling to fund the deal. They argued that solvency opinions from Huntsman’s chief financial officer and an independent appraisal firm were not satisfactory and said they had “serious reservations” about the prospects of a combined Hexion-Huntsman.

The banks declined to comment on the new lawsuit.

By Michael Erman