Solutia discloses valuation, plan terms; expects to emerge June 30

By Caroline Salls

Pittsburgh, April 27 - Solutia, Inc. disclosed formerly non-public information in relation to its Chapter 11 case and negotiations toward a consensual plan of reorganization, according to an 8-K report filed with the Securities and Exchange Commission.

According to the filing, the company entered into confidentiality agreements with some of its trade claimants and holders of its 6.72% notes due Oct. 15, 2037 and 7 3/8% notes due Oct. 15, 2027, under which Solutia agreed to provide confidential information to the noteholders, the trade claimants and others to enable discussions regarding a potential negotiated resolution of Chapter 11 issues.

To assure that the restrictions on the noteholders' and the trade claimants' ability to trade would be limited, Solutia agreed to publicly disclose the confidential information by April 30.

The publicly disclosed information includes:

• A summary of the status of Solutia's bankruptcy claims resolution process, which it provided to stakeholders on March 29.

According to this status report, there have been $813.3 million in unresolved unsecured claims asserted against the company, and Solutia's estimate for these claims is $124 million to $184 million.

The most significant unresolved claims include a $382.5 million claim asserted by Calpine, a $291 million claim asserted by Dickerson and a $30.4 million claim asserted by BOC Gases;

• A summary of the company's updated valuation, prepared by its financial advisers, provided to stakeholders on March 29. The disclosed valuation range is $2.5 billion to $3.2 billion, with a mid-point valuation of $2.8 billion;

• A summary of updated calculations, as of March 29, regarding Solutia's projected debt capacity upon emergence from Chapter 11. At its expected June 30 bankruptcy emergence date, Solutia is projected to have $1.674 billion in total pro forma debt.

The company is expected to have $1.91 billion in total funding sources at emergence, including a $1.654 billion exit facility;

• A summary of Solutia's updated business plan, which includes both historical and projected financial information; and

• A term sheet proposal to initiate discussions with the stakeholders for renewed settlement negotiations to reach a consensual plan of reorganization, as well as a letter proposing changes to the term sheet.

Proposed plan terms

Under the original plan terms proposed on April 10, the company expects to have a general unsecured claims pool of $302 million, a $355.9 million Monsanto claim and a fully diluted stock price per share of $10.00, assuming full participation in a proposed $250 million rights offering under which the rights will be struck at a 15% discount to the plan valuation.

Solutia said it will issue 119.5 million common shares upon emergence, with 90.1 million shares to be distributed directly to noteholders, general unsecured creditors, Monsanto and retirees; 29.4 million shares to be distributed based on estimated claim amounts to holders of noteholder and general unsecured claims under the rights offering; and 3.7 million for warrants to purchase common shares.

Proposed treatment of creditors under the plan will include:

• Noteholder claims will be exchanged for 45.5 million common shares, as well as rights to purchase 17.7 million common shares under the rights offering;

• General unsecured claims will be exchanged for 19.4 million common shares and rights to purchase 11.7 million common shares under the rights offering;

• Monsanto's claim will be classified separately from other claims and will be exchanged for 22.9 million primary common shares;

• Retiree claims will be exchanged for 2.3 million common shares; and

• Equity interests will be exchanged for warrants.

On April 16, Solutia amended some of the proposed plan terms, including the percentage of new common stock to be issued to Monsanto will be reduced to 17% from 19.1%; the percentage of new common stock to be distributed to the noteholders, not including stock issued under the rights offering, will increase to 40.2% from 38%; and Monsanto will receive an administrative claim for the amounts spent at shared sites in excess of the $50 million for which Monsanto is responsible under the global settlement.

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 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 03-17949.

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