Solutia's senior secured notes trustee says $223 million claim should not be reduced

By Reshmi Basu

New York, Dec. 5 - The indenture trustee for Solutia, Inc.'s senior secured notes asked the court to deny a motion by the creditors committee to reduce the principal amount of the noteholders' claim to $187.4 million from $223 million, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The 2009 noteholders have received a $223 million claim against Solutia, which the noteholders have argued is the principal amount of the 11¼% senior unsecured notes due 2009.

In addition, the noteholders said they are entitled to the post-petition interest and the amortized original issue discount during the pendency of the case.

The creditors committee, however, argued that the claim amount should be $187.4 million, and its belief was corroborated by judge Prudence Carter Beatty's recent decision in which she said that the noteholders were not entitled to any interest payments once the company exits Chapter 11 nor are they entitled to go after the original issue discount on the paper.

In Wednesday's documents, the trustee, the Bank of New York, argued that just two months ago, the creditors committee was on board with a concession made by the company, which indicated that the noteholders were entitled to interest payments on the notes "calculated at 11¼% of $223 million."

The Bank of New York, therefore, said the court should not allow the creditors committee to switch positions at this point in the game and noted that the committee had plenty of time to dispute interest payments earlier in the case yet waited until the eve of the confirmation hearing to do so.

Instead, the court should see the motion as a tactic by the creditors committee "to coerce the senior secured notes trustee in settlement discussion and to retaliate" for the trustee's objection to confirmation of the plan.

A hearing is slated for Dec. 10.

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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