World Economic

NEW YORK — A federal judge has granted Solutia Inc.’s request for a prompt trial of its fraud and breach-of-contract suit against three Wall Street banks that backed out of a $2 billion deal to finance the company’s exit from bankruptcy.

Judge Prudence Carter Beatty of the Bankruptcy Court in Manhattan set a Feb. 21 trial date on Solutia’s $2.25 billion lawsuit against Citigroup, Goldman Sachs and Deutsche Bank. But at a court hearing Friday, she refused Solutia’s request to force the banks to pay the money immediately if it wins the trial.

Under federal law, the banks have the right to ask for 10 days to file an appeal if Solutia wins the trial.

Solutia, based in Town and Country, said it needed a prompt trial to ensure it emerges from Chapter 11 protection by Feb. 28, the expiration date of a $250 million stock rights offering deal for Solutia’s unsecured creditors and note holders. That deal is a key part of the company’s reorganization plan.

The company said delays in its emergence from Chapter 11 could also wreck settlements Solutia has with its former parent company, Monsanto Co. Under those settlements, Monsanto would assume a large chunk of Solutia’s past and future personal injury and environmental contamination liability costs.

Solutia sued the banks Wednesday, contending they reneged on their agreement to make sure the company got the money it needed to pay for its bankruptcy exit free credit report without a credit card. The company wants the banks to provide the exit financing, or pay $2.25 billion in damages, according to Susheel Kirpalani, an attorney for Solutia.

Solutia said the lenders tricked it into believing that provisions of the loan contract were merely "recycled boilerplate." The lenders said those provisions allowed them to back out of the deal.

The banks say the provision, known as a "market MAC," allowed them to scuttle the loan package if financial conditions deteriorated significantly after the deal was signed. They said in court filings that market conditions had worsened since the deal was struck in October.

"There can be no doubt that the markets have changed adversely since October 25, 2007, a fact recognized by the Federal Reserve Board, and virtually every financial regulator, newspaper, commentator and practitioner in the world," they said.

Beatty confirmed Solutia’s bankruptcy plan in late November. But without the financing, Solutia can’t pay off debts necessary to implement its plan of reorganization.

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