Chemical supplier Huntsman Corporation and Apollo Management, a private equity firm, faced off in court on Monday in a case that will decide whether Apollo must honor its commitment to buy Huntsman. Following a July 2007 announcement that it would acquire Huntsman for $6.5 billion, Apollo and its subsidiary Hexion Specialty Chemicals filed suit against Huntsman in June, seeking to limit their liability in the event that the deal fell apart. Huntsman countersued.

Despite the efforts of a group of Huntsman investors who offered to provide additional funding, Hexion said on Monday the proposed funding was inadequate. “We’re at a point where we don’t believe you can feasibly close this deal,” Hexion CEO Craig Morrison testified during the first day of the trial in Wilmington, DE.

According to Hexion, the acquisition was no longer viable because of Huntsman’s increased net debt. It cited an opinion from financial advisory firm Duff & Phelps that the combined company would be insolvent if the purchase proceeded under the agreed terms.

Huntsman’s net debt has increased by approximately $1 billion from its level at the July 2007 signing, while its earnings before interest, taxation, depreciation and amortization dropped by 35%, said Hexion attorney Marc Wolsinsky.