Lenders Say Solutia Knew Risks of Financing

Philadelphia, PA, February 8, 2008--Citigroup Inc. and other lenders involved in the bankruptcy financing package for Solutia Inc. say the contractual provision they invoked to get out of the financing package was carefully negotiated and that the company knew the risk it entailed.

Citigroup, Goldman Sachs, and Deutsche Bank challenged Solutia's complaint that it was tricked into accepting the provision. The provision, known as a "market MAC," allowed them to scuttle the loan package if financial conditions deteriorated significantly after the deal was signed.

Solutia, reached the agreement in late October so it could exit from four-year-long bankruptcy reorganization. In its lawsuit, filed Wednesday in the U.S. Bankruptcy Court in Manhattan, Solutia said the lenders gave it the impression that the provision was harmless boilerplate language.

"Simply put, without the exit financing, (Solutia) potentially will be left to start from scratch on a bankruptcy plan that took four years and myriad integrated compromises to achieve," the company said. The consequences for Solutia's employees and creditors could be "potentially devastating," it said.

Citigroup, Goldman Sachs and Deutsche Bank acknowledged in court papers that the use of the provision had become "relatively rare" in loan contracts recently. But that changed once the global credit crunch began last summer, the lenders said.

"Indeed Citi explicitly advised Solutia that the inclusion of an adverse-market-change provision was a condition for approval of the financing by its credit committee," the lenders said.