Solutia's disclosure statement needs more clarity, judge says; schedules hearing for July 17

By Reshmi Basu

New York, July 10 - Solutia Inc's disclosure statement for its plan of reorganization needs cleaner and more concise language to allow the relevant parties to evaluate the deal, a U.S. bankruptcy judge said Tuesday.

Declining to approve the document, judge Prudence C. Beatty of the U.S. Bankruptcy Court for the Southern District of New York also added that the plan appeared to act in the best interests of Monsanto Co., an agricultural biotechnology corporation, which spun off its industrial and fiber divisions into Solutia in 1997.

A second disclosure statement approval hearing has been scheduled for July 17.

Amongst her complaints, the judge criticized the statement for not stating clearly who will be casting votes for the reorganization plan, noting that the information is buried and muddled.

In particular, she said the document did not spell out how retirees would be treated under the plan and exactly who is entitled to vote, whether it is the retiree or the representative of the retiree committee.

In the present form, Beatty told counsel that if retirees saw this document, their response would be "Huh?"

The statement "doesn't deal in a way that would be understandable to retirees. It's a technical question but a lot of what is in there does not prepare them for what they need to know," she told the court.

"These people are going to get all upset and you don't need that."

Dioxin claims prompt dispute

Meanwhile counsel for Solutia said they had addressed questions surrounding Nitro tort claims. Nitro is a small town in West Virginia, which its residents say has become polluted from the release of the toxic chemical dioxin from an old chemical plant of Monsanto's.

"Monsanto is taking all the claims," said Solutia attorney Jonathan S. Henes of Kirkland & Ellis LLP.

However, judge Beatty disagreed. She said that from the disclosure statement, it appeared that Solutia was getting the raw end of the deal while Monsanto was receiving protection from tort claims.

"I don't understand how you are doing anything for Solutia," she said, adding that all the claims were being left to the company.

Pharmacia Corp., a former Monsanto affiliate, has also been named as a defendant in tort claims.

"Under your plan, Pharmacia is not getting any release that would protect them under those tort claims," she added.

Meanwhile, the counsel for the nitro tort claimants Stuart Calwell objected to the plan.

He said that there needed to be an understanding that the residents of Nitro would have the right to pursue the claims even if the company emerged from bankruptcy.

"All we want is to be able to emerge from this economic alignment...let them make their money," Calwell told the court.

"But let us pursue our lawsuits as if this had never taken place."

To that issue, Henes said Monsanto is taking all financial liabilities for the claims. He added that he assumed that all of them will be tort claims and they will survive.

"All these dioxin claims - whether they are filed or not - will be Monsanto's responsibilities, said Henes, adding that was good news for Solutia.

"We won't have to figure it out. In fact because Monsanto is taking those claims...Calwell can have his day in court."

Judge wants detail on Dickerson claims

In another issue, the judge questioned the language surrounding the Dickerson claim, in which there are allegations that Solutia breached its fiduciary duties, causing losses to the company's savings and investment plan.

"The plan just repeats what the statutes say in terms of defining that claim," the judge said, adding there needs to be fine tuning as to who the people really are as opposed to how those people are defined by the claim.

The judge added that she was unsure as to whether to let Solutia settle with the lawyers from Dickerson because of how it would impact the larger picture of recovery rates.

In another objection to the motion, senior secured noteholders said they wanted to make sure that there is not an early repayment of the notes, which are set to mature in 2009.

"In essence, if they are to prepay, there will be some liabilities," said the committee's attorney John Cunningham of White & Case LLP.

In particular, Cunningham criticized Solutia for overturning the classification of the noteholders at the last minute.

"Thirteen months ago, they said we were unimpaired under the original plan. Therefore we are deemed to [accept] the plan. Last week, they flip it to where we are now impaired," he told the court.

Plan is premature, says noteholders

In addition, Bennett Murphy, of Hennigan Bennett & Dorman LLP, counsel to the ad hoc committee of Solutia's noteholders, said that solicitation on the plan was premature because noteholders needed more disclosure.

According to the noteholders, because the plan fully incorporates the terms of a settlement with Monsanto, the court must first approve that settlement before the plan can be confirmed.

He noted there should be a settlement of the lien issue that will be contested by $450 million of the noteholders, which he said he represented.

The deal "gives Monsanto far too much for what they are giving.

"The plan is not ready for primetime."

However, Edward S. Weisfelner of Brown Rudnick Berlack Israels LLP, representing the ad hoc trade claims committee, disagreed, saying that Murphy was playing the court through disingenuous arguments and was looking to up the leverage for his clients so that they could extort value.

"You never heard the noteholders complain about the settlement until they lost the second lien litigation.

On May 1, Solutia obtained a ruling that holders of its 7 3/8% notes due Oct. 15, 2027 and its 6.72% notes due Oct. 15, 2037 are not entitled to a lien on any company assets and therefore should be treated like all of the other unsecured creditors.

The ruling was made by judge Beatty as part of the company's JP Morgan bondholder litigation.

Weisfelner further told the court that Murphy represented about half of the class, under which $270 million are "in and out of the credit" on an hourly basis thanks to frequent trading.

"They shift like the sand in an hour glass," Weisfelner told the court.

"Murphy does not need disclosure. He's not complaining about disclosure.

"This is about playing the judge," he added, suggesting that Murphy was representing the interests of hedge funds only.

Moreover, Daniel H. Golden of Akin Gump Strauss Hauer & Feld LLP, the counsel for the official committee of unsecured creditors, agreed with Weisfelner that the disclosure statement should be approved.

"Nothing has changed from a month ago," Golden told the court remarked, adding that official creditors committee has been chastised by Murphy for supporting a global settlement.

Equity committee wants more disclosure

Meanwhile the official committee of equity security holders said the amended plan provides shareholders something which it had not before - warrants.

But he committee said that two issues need to be disclosed: the value of the stock and whether equity holders are receiving enough value in return for their claim.

"They [debtors] have to sell this. We believe Monsanto had a part in penning this," the counsel for the equity shareholders told the court.

In delaying her ruling, judge Beatty noted that "little things keep on popping out of the woodwork."

She asked that the debtors address the mechanics of the retirees and tort claims as well as be more upfront with the release issues.

The disclosure statement has "slung a little too far in terms of taking a pro-Monsanto/Pharmacia position," she told the court.

"You talk about what Monsanto is doing for you. You have to address those people...who don't believe Monsanto walks on water."

Judge Beatty remarked that the debtors should address issues arising from the objections as well as clarify the language of the disclosure statement.

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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