Solutia files amended plan that includes $250 million unsecured creditor rights offering

By Caroline Salls

Pittsburgh, May 17 - Solutia Inc. filed an amended plan of reorganization and related disclosure statement Wednesday with the U.S. Bankruptcy Court for the Southern District of New York that allows greater creditor recoveries because of an increase in the estimated value of the reorganized company and includes a $250 million rights offering for unsecured creditors, according to a company news release.

"As a result of the successful execution of our reorganization strategy, we have substantially increased the value of the company since the filing of the original plan," chairman, president and chief executive officer Jeffry N. Quinn said in the release.

"Under the plan, Solutia estimates that the enterprise value of reorganized Solutia will be $2.5 billion, with corresponding implied reorganization equity value of approximately $1.2 billion."

The plan calls for $250 million of new investment in reorganized Solutia, which will come in the form of an unsecured creditors rights offering.

Under the rights offering, the creditors will be given the opportunity to purchase 27.9% of the common stock in the reorganized company.

Of the $250 million rights offering proceeds, $175 million will be set aside in a Voluntary Employees' Beneficiary Association (VEBA) Retiree Trust to fund the retiree welfare benefits for pre-spinoff retirees who receive benefits from Solutia.

The other $75 million will be used by reorganized Solutia to pay for other legacy liabilities.

In consideration for the retiree benefits changes, the retirees will receive a $35 million unsecured claim, and the new common stock received on account of this claim will be deposited into the VEBA Retiree Trust, along with the $175 million from the rights offering.

Solutia said the plan has the support of its official committee of unsecured creditors, Monsanto Corp., Pharmacia Corp., the official committee of retirees and an informal committee of trade creditors.

"We are pleased to have filed a plan that positions Solutia to emerge from Chapter 11 with an improved cost structure, strengthened balance sheet and greatly reduced risk profile," Quinn said in the release.

In addition to increased recoveries, Solutia said some equity ownership in the reorganized company has been reallocated.

Legacy relief

The company said the plan also provides significant relief from the legacy liabilities Solutia was required to assume when it spun off from Pharmacia, formerly known as Monsanto Co., in 1997.

The related legacy liabilities include retiree medical, retiree life insurance and disability benefits for employees who retired or became disabled before the Solutia spinoff; environmental remediation costs related to activities of Pharmacia's chemicals business that occurred before the spinoff; and toxic tort litigation costs related to chemical exposure associated with pre-spinoff Pharmacia activities.

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

Monsanto will also 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 were never owned or operated by Solutia.

Solutia will still be responsible for the environmental liabilities at sites that it owns or operates.

Solutia and Monsanto will share financial responsibility at two sites. Under this cost-sharing mechanism, the first $50 million of post-emergence remediation and cleanup costs will be funded by the proceeds of a rights offering

As required, Monsanto has already expended more than $50 million toward these sites during the course of Solutia's Chapter 11 case. As a result, Monsanto will be entitled to an administrative claim of at least $14.2 million.

Upon emergence, Solutia will be responsible for the funding of these sites up to an agreed upon amount. Thereafter, if needed, Monsanto and Solutia would share responsibility equally, and Solutia would be able to defer paying more than $30 million in off-site remediation costs in any calendar year.

Any deferred amounts would be paid by Monsanto, subject to repayment by Solutia at a later date.

The plan also includes an assumption and extension of commercial and operating agreements between Solutia and Monsanto, and the plan also seeks a discharge for Solutia from most pre-bankruptcy claims.

Creditor treatment

According to the release, unsecured creditor recovery has increased to 85% under the new plan from 52% under the original plan.

Also under the plan, Solutia's senior secured notes will be paid in full in cash with proceeds from $2 billion in exit financing to be arranged by the company.

Treatment of creditors under the plan will include:

• Holders of general unsecured claims will receive their share of 34.1% of the new common stock in the reorganized company, which is expected to result in a recovery of 84.8 cents on the dollar;

• Holders of noteholder claims will receive their share of 44.1% of the new common stock, also for an expected recovery of 84.8 cents on the dollar;

• Monsanto will receive 20% of the new common stock and will have an administrative claim for all amounts spent in excess of $50 million in connection with environmental cleanup and remediation at shared sites;

• Retirees will receive 1.8% of the new common stock, which will be deposited into a VEBA Retiree Trust to pay retiree welfare benefits, plus $175 million from the rights offering; and

• Holders of existing equity interests will receive no distribution under the plan.

Solutia said it expects the unsecured noteholder claims pool to be $455.4 million and the general unsecured claims pool to range from $327 million to $377 million, with a mid-point of $352 million.

The reorganized company's nine-member board of directors will include Quinn; one continuing director of Solutia; one director designated by Monsanto; and six directors designated by the official committee of unsecured creditors, to be selected in consultation with the company and Monsanto.

Solutia said it will ask the court to schedule the disclosure statement approval hearing for early July.

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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