Solutia files for Chapter 11, sees 6% to 40% recovery for unsecured creditors

By Peter Heap

New York, Dec. 17 - Solutia Inc. made a voluntary filing for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York.

The company said it made the filing to obtain relief from its legacy liabilities, which include litigation and settlement costs, environmental remediation and Monsanto retiree healthcare obligations that Solutia was required to assume when it was spun off from the former Monsanto Co., now Pfizer's Pharmacia subsidiary.

The St. Louis chemical company described the legal liabilities as "an obstacle to Solutia's financial stability and success."

Solutia said it has told bondholders that under an illustrative scenario unsecured claims will see a recovery of between 6% and 40%. Those figures, the company added in a filing with the Securities and Exchange Commission, do not take into account employee claims, taxes and administrative fees and expenses.

That level of recovery for unsecured creditors indicates the company's stock will be worthless, Solutia added.

To support operations during the Chapter 11 proceedings, Solutia has obtained a $500 million debtor-in-possession credit facility. It will use $350 million of the proceeds to replace its current senior credit facility (See separate report on this page for details).

Solutia listed total assets of $2.854 billion and total debts of $3.223 billion in its Chapter 11 filing.

It said Lord, Abbett & Co. owns 14.47% of its common stock, Fidelity Management & Research 13.1% and Pimco Equity Advisors 6.1%.

The largest unsecured claim is JPMorgan Chase Bank as trustee for Solutia's 7 3/8% debentures due 2027 with $300 million followed by HSBC Bank USA as trustee for the 11¼% senior secured notes due 2009 with a $223 million principal amount that is partially secured, KBC Bank NV as paying agent and Kredietbank SA as fiscal agent with a guarantee for €200 million of bond debt and JPMorgan Chase Bank as trustee for $150 million of 6.72% debentures due 2037. The next largest claim is $29.2 million, a disputed contract claim with UCB SA of Brussels, Belgium.

Solutia said that along with its subsidiary Solutia Europe SA/NV it reached agreement with holders of two-thirds of the principal amount of its €200 million 6¼% euro notes due 2005 to restructure those notes so that the Chapter 11 filing does not cause an acceleration of the notes.

This change allows Solutia Europe to continue normal operations outside bankruptcy proceedings in either the United States or Belgium, its country of incorporation.

The maturity of the notes was extended to Dec. 15, 2008 from Feb. 15, 2005, and the interest was increased to 10% annually.

Holders were granted a security interest in substantially all the assets of Solutia Europe and its subsidiaries.

Partial redemption from permitted asset sales will be allowed. Full redemption will be barred for 18 months. After that they will be callable at 105, then 103 the year after that, declining to 101 and par.

Following completion of the first step of these changes at a meeting of noteholders on Dec. 16, Solutia made an additional interest payment of €1.3 million. There will be a second meeting in Brussels by Jan. 29.

Solutia noted that if its European businesses filed for reorganization noteholders could expect a recovery or around 60%.

Solutia said it has spent about $100 million a year to service legacy liabilities that it was required to accept when spun off from Monsanto.

"We have taken aggressive steps to offset these legacy costs and strengthen our financial health by cutting more than $100 million from our operating costs, working with Monsanto Corp. to resolve the onerous Alabama PCB litigation, refinancing our credit facility and beginning to restructure our broader debt portfolio," said John C. Hunter, chairman, president and chief executive officer of Solutia, in a news release.

"Concurrently, we have made every effort to come to an out-of-court resolution with Monsanto regarding these legacy liabilities. However, these negotiations have not been successful.

"We simply could not continue to sustain our operations burdened by Monsanto's legacy liabilities, which, combined with the weakened state of the chemical manufacturing sector, current economic conditions and the continuing high energy and crude oil costs with unprecedented volatility, has prevented us from realizing Solutia's true value."

Solutia said it expects that Monsanto/Pharmacia will file a claim of between $2 and $4 billion as a result of its rejection of the distribution agreement and treatment of the legacy liabilities assumed by Solutia at the time of its spin-off.

Solutia said its management does not believe that the claim would be valid in its entirety.

Solutia will continue operations as normal during Chapter 11. Vendors will be paid in full for all goods furnished and services provided after the bankruptcy filing date.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.