Solutia files amended plan based on global settlement

By Caroline Salls

Pittsburgh, Oct. 15 - Solutia Inc. filed its fifth amended plan of reorganization and related disclosure statement Monday with the U.S. Bankruptcy Court for the Southern District of New York.

As previously reported, the company negotiated the new plan with "all of its major constituents," including the ad hoc committee of Solutia noteholders, the official committee of equity security holders, the official committee of unsecured creditors, Monsanto Co., Pharmacia Corp, the official committee of retirees and the ad hoc committee of trade creditors.

The new plan includes $250 million of new investment in the reorganized company in the form of a rights offering to noteholders and general unsecured creditors. They will be able to buy new common stock at a 33.3% discount to the implied equity value.

The rights offering will be backstopped by a group of creditors for which they will receive a fee of 2.50% and an allocation of 15% of the rights offering.

Funds generated by the rights offering will be used to provide $175 million for a Voluntary Employees' Beneficiary Association retiree trust to fund the retiree welfare benefits for pre-spin retirees who receive from Solutia. The remaining $75 million will be used to pay for other legacy liabilities being retained by the company.

Consistent with Solutia and Monsanto's prior agreement, the plan provides that Monsanto will take on financial responsibilities in the areas of tort litigation and environmental remediation.

Specifically, Monsanto will be financially responsible for all current and future tort litigation costs arising from Pharmacia's chemical business prior to the Solutia spinoff, including litigation arising from exposure to PCBs and other chemicals.

Monsanto will accept financial responsibility for environmental remediation and clean-up obligations at all sites for which Solutia was required to assume responsibility at the spinoff, but which were never owned or operated by Solutia. Solutia will remain responsible for the environmental liabilities at sites that it presently owns or operates.

Solutia and Monsanto will share financial responsibility with respect to two sites. The first $50 million of post-emergence remediation and clean-up costs will be funded by the proceeds of the rights offering. Upon emergence, Solutia will be responsible for funding these sites up to an agreed upon amount. After that, Monsanto and Solutia will share responsibility equally.

Also under the amended plan, equity holders that have a stake above a specified threshold will be able to participate in the rights offering for up to 17% of the new stock for $175 million, a discount from the implied equity value under the revised plan.

Proceeds from the sale of this equity will fund a cash payment to Monsanto of up to $175 million. Any stock not purchased will be distributed to Monsanto.

All parties have agreed to stay all pending litigation relating to Solutia's Chapter 11 cases until the effective date of the plan, at which time it will be dismissed.

Plan creditor treatment

Recoveries under the amended plan will include:

• Holders of $2.2 million in priority non-tax claims, $40 million to $50 million in senior secured claims, $209.9 million in secured note claims, $1 million to $2.5 million in convenience claims and $8.4 million in CPFilms claims will recover 100% under the plan;

• NRD claims will be reinstated;

• Holders of $2.44 billion in debtor intercompany claims and Axio claims will receive no distribution under the plan;

• Holders of $317 million to $367 million in general unsecured claims will receive 31.4% of the new stock for a recovery of 83.1 cents on the dollar;

• Holders of $455.4 million in noteholders claims will receive 43.8% of the new stock for a recovery of 88.4 cents on the dollar;

• Monsanto will receive up to $175 million in cash, to be reduced by any stock not taken up by equity holders in the rights offering;

• Current equity holders will receive 1% of the new stock and those with stakes above a threshold will receive to buy up to 17% of the new stock for a possible 18% stake.

Current equity holders who own at least a specified number of shares will also receive five-year warrants for 7.5% of the common stock and the right to participate in a buy out for cash of general unsecured claims of less than $100,000 but more than $2,500 for a recovery of 52.35%, subject to the equityholders' election to sell their claims;

• Holders of $35 million in retirees claims will receive the benefits provided under the terms of the settlement between Solutia and its retirees, for a 69.8% recovery. They will receive 2.01% of the new common stock which will be deposited into a VEBA trust and used to pay retiree welfare benefits. This is in addition to the $175 million from the rights offering that will also be deposited into the trust;

• Creditors backstopping the rights offering will own 4.7% of the new common stock.

The enterprise value of the reorganized company is estimated at $2.85 billion, with an implied reorganization equity value of $1.2 billion.

A total of 59.75 million shares of new common stock will be issued by the reorganized company.

Solutia expects to obtain up to $2 billion in exit financing.

New board of directors

The board of reorganized Solutia will have nine members: Jeffry N. Quinn, Solutia's chairman, president and chief executive officer; J. Patrick Mulcahy, a current director of Solutia; one director designated by each of Monsanto, the general unsecured creditors and the noteholders; and four directors designated by a five-person search committee consisting of Quinn, two representatives from the noteholders and one representative each from the general unsecured creditors and the ad hoc trade creditors.

"This consensual plan of reorganization, which is supported by all of the major constituents in our case, will facilitate Solutia's emergence from Chapter 11 as a financially healthy company," Quinn said in a company news release.

A hearing on approval of the disclosure statement is scheduled for Oct. 19.

According to the release, the plan vote solicitation materials will be sent to creditors following the statement approval, and creditors will have 30 days to vote on the plan.

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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