Banks put Apollo's Huntsman buyout on hold

Credit Suisse and Deutsche Bank do not believe a solvency opinion from valuation firm American Appraisal obtained by Huntsman last week meets the conditions of the deal, shelving plans to close the deal today.

Huntsman Corporation's merger with Apollo Global Management-backed Hexion Specialty Chemicals will not close today as planned because Credit Suisse and Deutsche Bank do not plan to finance the deal.

The banks, according to a statement from Huntsman, do not believe a solvency opinion from American Appraisal that the combined companies would be solvent after the merger meet the conditions of the deal. Hexion is working with the banks to resolve the issue, Huntsman said. Credit Suisse has said that it was prepared to fund the deal if a solvency certificate could be provided at closing.

Last week, Huntsman obtained a solvency opinion from valuation firm American Appraisal concluding that the company resulting from a merger between Huntsman and Hexion would “satisfy all of the solvency tests commonly used in transactions of this nature”, according to Huntsman.

Credit Suisse and Deutsche Bank are currently subject to a restraining order preventing them from filing any lawsuit “that directly or indirectly alleges that the combination of Hexion and Huntsman would be insolvent or would be in any way incapable of performing its obligations to pay off the notes”.

The terms of the merger, agreed in August 2007, called for a price of $28 per share plus ticking fees in the event of delay bringing the per share price to $29.31, the email said. Huntsman’s stock is currently trading at $12.84 per share.

Huntsman stockholders have agreed to make additional cash payments of $217 million to the company upon the closing of the transaction, bringing the total equity backstop to $677 million.

Apollo will contribute an additional cash payment of $210 million to Hexion upon close in addition to the $540 million the firm committed earlier this month. Apollo also previously waived its contractual right to a transaction fee from the merger and agreed to suspend its monitoring fees from Hexion for three years in an effort to close the deal.

Hexion filed a lawsuit in June asserting that Huntsman had suffered a material adverse change in its business following the merger agreement in August 2007 and the company was under no obligation to complete the transaction or pay a break-up fee.

Hexion also said that the combined company would be insolvent as a result of the debt load built into the deal and that financing would not be available.

A Delaware Chancery Court judge said Hexion’s insolvency report was unreliable, and Hexion had no contractual right to terminate the agreement on the basis of potential insolvency or lack of financing. The court ruled that Huntsman had not suffered a material adverse change and ordered Hexion to “perform all of its covenants and obligations (other than the ultimate obligation to close)” in its agreed buyout of Huntsman.

Huntsman continues to pursue damages of more that $3 billion in a Texas lawsuit against Apollo and the firm’s founders Leon Black and Joshua Harris.

Christopher Witkowsky contributed to this article.