Solutia amended plan revises unsecured creditor recovery; equity holders could receive warrants

By Caroline Salls

Pittsburgh, July 9 - Solutia Inc. filed its second amended plan of reorganization and related disclosure statement Monday with the U.S. Bankruptcy Court for the Southern District of New York that proposes changes to the distribution for noteholders, general unsecured creditors and equity interest holders.

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

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.

Legacy relief

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.

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.

According to the second amended disclosure statement, the hearing on approval of the Monsanto and retiree settlements is scheduled for Sept. 5.

Solutia said it will solicit plan votes following approval of the disclosure statement, but, based on the outcome of that hearing, it may need to negotiate terms of a new plan or re-solicit votes based on any changes to the second amended plan.

Creditor treatment

Under the second amended plan, holders of noteholder claims and general unsecured claims will receive 49.9% of the new common stock in the reorganized company and will be eligible to participate in the rights offering.

Creditors who do not participate in the rights offering will receive a recovery of 74.8 cents on the dollar and those who do participate in the rights offering will recover 85.3 cents on the dollar. Under the previous plan, all of these creditors were slated to receive new common stock, without the rights offering option, for a recovery of 84.8 cents on the dollar.

Monsanto will receive 20% of the new common stock in the reorganized company, and retirees will receive 2.2% of the new common stock, up from 1.7% under the previous plan. Retirees will recover 74.8 cents on the dollar.

In addition, holders of existing equity interests will receive warrants to purchase 3.5% of the new common stock at a strike price of $14.16 if creditors in the Monsanto, noteholder, general unsecured, retiree, Pharmacia and equity interest classes vote to accept the plan. If these creditors reject the plan, equity holders will receive no distribution under the plan.

The previous plan included no distribution for equity holders.

Treatment of creditors under the plan will include:

• Holders of general unsecured claims and noteholder claims will receive their share of 49.9% of the new common stock in the reorganized company and will be eligible to participate in the rights offering;

• 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 2.2% 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 warrants to purchase 3.5% of the new common stock in the reorganized company if the Monsanto, noteholder, general unsecured, retiree, Pharmacia and equity interest classes vote to accept the plan, or they will receive no distribution under the plan if those creditors vote to reject it.

The company said it plans to obtain $2 billion in exit financing.

Unsecured claim amounts

Solutia said it expects the unsecured noteholder claims pool to be $455.4 million and the general unsecured claims pool to range from $317 to $367 million, compared with $327 million to $377 million under the first amended plan, with a midpoint of $342 million.

The disclosure statement hearing is scheduled for July 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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