Solutia senior secured notes trustee demands full payment of notes claim

By Caroline Salls

Pittsburgh, Sept. 21 - Solutia, Inc.'s senior secured notes trustee requested a partial summary judgment that allows all senior secured notes claims and either reinstates the company's senior secured notes, creates a cash sinking fund for payment of principal and interest or gives noteholders a distribution under Solutia's plan of reorganization equal to reinstatement or the sinking fund amount.

The company and its official committee of unsecured creditors have also filed a motion, asking the court to uphold their objection to the senior secured notes claim.

According to a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York, Solutia is trying to strip $35 million from the total claims asserted by the noteholders against Solutia and some of its solvent subsidiary debtors that are guarantors of the notes.

However, notes trustee The Bank of New York argued in the motion that Solutia's solvent subsidiaries should not be able to use the parent company's bankruptcy to avoid their debts.

Bank of America said by removing the debt from the solvent subsidiary debtors' ledgers, the company expects value to flow up to Solutia through its residual equity interests and ultimately be distributed to unsecured creditors that are not creditors of the subsidiary guarantors.

"There is simply no basis in existing precedent for a solvent debtor to use [bankruptcy code] to strip away material contractual benefits from an oversecured creditor in order to redistribute value to its equity," Bank of America said in the motion.

If the notes claims are left unpaid, Bank of America said it could obtain a judgment for the full $223 million principal amount of the claims, plus damages.

In addition, Bank of America said the change of control that would occur under Solutia's proposed plan of reorganization would give the noteholders the right to force Solutia to buy the senior notes back at a price equal to the change-of-control amount, or a minimum of $225.23 million, plus interest.

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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