Solutia noteholders request exclusivity termination to allow litigation settlement plan

By Caroline Salls

Pittsburgh, April 20 - Solutia Inc.'s informal noteholders committee asked the U.S. Bankruptcy Court for the Southern District of New York to terminate the company's exclusivity so it can submit an alternative plan negotiated with Monsanto Corp. that the company refuses to support, according to a Friday court filing.

According to the motion, the noteholders' plan provides for Monsanto and the noteholders "to make major concessions in a fair and reasonable compromise of pending litigation."

The noteholders said the plan also offers a fair compromise to general unsecured creditors and is confirmable whether that class votes to accept the plan or not.

The noteholders said Solutia, as a stakeholder, "should not be permitted to stand in the way of a confirmable plan providing for a comprehensive settlement of litigation that will otherwise mire these cases in expense and delay for years."

Monsanto/noteholders plan outline

Key components of the Monsanto/noteholders plan include:

• Monsanto would substantially reduce the equity stake it would receive in reorganized Solutia as compared to the company's formerly proposed global settlement;

• Monsanto would fully perform all of the obligations under the global settlement, except it will receive less compensation for its equity stake;

• Noteholders would receive less than the full recovery they would receive as secured creditors, in a compromise of a JPMorgan adversary proceeding;

• Noteholders would agree to commit new capital to assure that Solutia will have enough cash to fund obligations under the global settlement and a retiree settlement by backstopping a $200 million rights offering;

• General unsecured creditors would receive equity in reorganized Solutia and an opportunity to acquire more in the rights offering;

• General unsecured creditors and equity security holders would be offered warrants for stock in reorganized Solutia, allowing them to participate in the potential "upside" value of reorganized Solutia following its emergence from bankruptcy; and

• General unsecured creditors would receive substantially more than if the noteholders were successful in the JPMorgan adversary proceeding.

The noteholders committee said it has been evident for quite some time that the company is attempting to serve the interests of general unsecured creditors over those of noteholders, "even if the results are enormous litigation costs and long delays in the debtors' emergence from bankruptcy."

"The [company's] response to the settlement plan confirms that the noteholders' committee's assessment was entirely correct," the motion said.

As previously reported, Solutia's official equity committee also asked the court to terminate the company's exclusivity on April 11, saying that it is concerned that any in plan proposed by the company, Solutia will fail in its fiduciary obligations to all the constituents in the bankruptcy case by providing little or no recovery to public shareholders.

The committee said Solutia will instead gift the hidden value in its businesses to Monsanto, the bondholders and other unsecured creditors in violation of the absolute priority rule.

A hearing is scheduled for May 1.

Solutia, a St. Louis-based manufacturer and provider of performance films, specialty chemicals and an integrated family of nylon products, filed for bankruptcy on Dec. 17, 2003. Its Chapter 11 case number is 03-17949.

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