Solutia's official equity holders committee wins SEC support

By Jeff Pines

Washington, April 23 - The Securities and Exchange Commission filed a brief supporting the continued existence of Solutia Inc.'s official equity holders committee.

The official unsecured creditors committee and the official retirees' committee want the equity holders' committee disbanded.

The SEC believes there is a "good possibility of solvency" for the St. Louis-based chemical company and argued that the equity holders, of which there are many, have no one protecting their interests other than the equity committee.

Bankruptcy law allows for an equity holders' committee if the company is solvent, and that is the key issue.

In an earlier motion proposing that the equity committee be disbanded, the unsecured creditors' committee argued the company is "hopelessly insolvent."

But the U.S. trustee, who appointed the equity holders' committee after consulting with the SEC, the company and the other committees, decided there is a possibility the company may be solvent and therefore an equity committee was warranted.

The SEC said the appearance of insolvency does not preclude an equity committee being appointed. For example, it cited the Amresco, Inc. and Cone Mills, Inc. cases where there was the appearance of insolvency but equity holders' committees were nonetheless appointed.

Another issue is that much of Solutia's management are former Monsanto employees and may have substantial holdings of the stock of their former employer, now the Pharmacia Corp. and a part of Pfizer Corp. That means they are unlikely to pursue an aggressive legal strategy against it, the SEC said.

So the only entity capable of looking out for equity holders' interests in this case is the official equity holders' committee, the SEC said.

Further, the company's market value dropped to "negligible value" as of late from about $417 million on Sept. 30.

"This steep decline requires an explanation, particularly since there is no indication that the debtors offered any public disclosure to form the basis for such a substantial deterioration in value," the commission said.

Solutia filed for bankruptcy on Dec. 17, 2003 citing the burdens of Monsanto's legacy legal liabilities as well as the costs of retiree programs. Its Chapter 11 case number is 03-03-17949.

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