Bankruptcy Court Grants Solutia More Time
St. Louis, Mo, March 13, 2007--Solutia Inc. on Monday was granted more time to pursue three possible paths out of its three-year-old bankruptcy reorganization, according to the St. Louis Post-Dispatch.
The newspaper reported that U.S. Bankruptcy Court Judge Prudence Carter Beatty in Manhattan ruled that the chemical and window-film maker should continue to be in sole charge of its destiny for a few more weeks. A precise deadline will be given once she signs a court order.
A committee of bondholders has repeatedly sought permission to intervene and offer its own reorganization plan, saying Town and Country-based Solutia is not making adequate progress.
The primary obstacle, however, is a claim made by certain bondholders that their debt was improperly classified as unsecured by Solutia. A hearing on the matter was held last summer, but Beatty has yet to rule on the bondholders' dispute. Advertisement
Parties to the case have urged in filings that the judge do so.
Everyone involved is "painfully aware … these cases are mired in unresolved litigation among parties who have been unable to settle," said a motion filed by Monsanto Co. of Creve Coeur, which spun off Solutia and is liable for environmental cleanups, litigation defense and retiree benefits if Solutia fails. Monsanto and Solutia are paying millions of dollars in attorneys' fees while the reorganization drags on.
A committee of Solutia retirees also asked Beatty to rule in the bondholder case, out of concern that the company won't successfully reorganize and be able to fund a promised $175 million trust for their future medical benefits.
Even the bondholders — a group of speculators who acquired the notes during the course of Solutia's bankruptcy from original investors in the company — said a deadline for a ruling could spur movement toward a settlement.
On Friday, Beatty said she ultimately would have to rule, perhaps in six to eight weeks, said Paul Berra, Solutia's vice president of communications, who attended the hearing.
In the meantime, Solutia is exploring three alternative plans to reorganize:
•A "global settlement" in which Monsanto assumes legacy tort and environmental liabilities in exchange for an equity stake in Solutia; and the bondholders receive 80 cents on the dollar of their claims, greater than the 63.5 cents given for general unsecured claims. The bondholders would have to agree.
•A sale of all of Solutia's equity to a strategic investor, with the cash being used to settle its claims. Solutia would reserve cash to pay the bondholders in full, should Beatty rule in their favor, but Solutia could emerge while the matter is pending.
•A sale of certain Solutia assets, with the cash being used to satisfy liabilities and pay off creditors including the bondholders. Solutia would reorganize as a smaller company around remaining lines of business.
"We're trying to run all those options to ground in the near term … meaning in the next 30 days," Berra said.
Solutia met with 18 potential buyers, and six of those firms indicated interest. Of those, half are interested in buying the entire company and the rest want only certain assets. "The exploratory sale process was successful," said Solutia chief executive Jeffry Quinn in a court filing.
Quinn and six senior executives have an incentive to see the company through bankruptcy: On Friday, Beatty approved a compensation plan that provides them with bonuses based on the date of emergence — the sooner it happens, the more they get.
The plan also increases Quinn's 2007 salary to $825,000 from $500,000 last year.