Solutia Files Voluntary Petition For Chapter 11 Re
St. Louis, MO, Dec. 17--Solutia Inc. announced today that it and 14 of its U.S. subsidiaries have filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. Solutia’s affiliates outside the United States were not included in the Chapter 11 filing. Solutia has approximately 6,700 employees worldwide.
During the Chapter 11 proceedings, Solutia’s worldwide operations will operate without interruption. The company has taken steps to ensure continued supply of goods and services to its customers. In that regard, Solutia has received a commitment for up to $500 million in new debtor-in-possession (DIP) financing, $350 million of which will replace Solutia’s current senior credit facility. Upon Court approval, the DIP financing, combined with the company’s cash from operations, will provide sufficient funding for operations during the Chapter 11 process. Vendors will be paid in full for all goods furnished and services provided after the filing date as required by the Bankruptcy Code. The company has requested Court approval to continue to pay employees without disruption and in the same manner as before the filing, and expects the request to be granted as part of the Court’s “first day” orders.
The decision to file was made to obtain relief from the negative impact on the company caused by legacy liabilities, which include litigation and settlement costs, environmental remediation and Monsanto retiree healthcare obligations, Solutia was required to assume when the company was spun-off from the former Monsanto Company, which is now known as Pharmacia, a wholly owned subsidiary of Pfizer. These legal liabilities have been an obstacle to Solutia’s financial stability and success.
Under the U.S. Bankruptcy Code, these liabilities will be discharged as pre-petition liabilities pursuant to a plan of reorganization.
“Solutia has spent approximately $100 million each year to service legacy liabilities that it was required to accept at the time of the spin-off from Monsanto,” said John C. Hunter, chairman, president and chief executive officer of Solutia. “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 Corporation to resolve the onerous Alabama PCB litigation, refinancing our credit facility and beginning to restructure our broader debt portfolio. 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,” added Hunter. “Today’s action represents a significant step for Solutia, a turning point that allows us to take control of our future. We believe that the Chapter 11 process will give us a forum to shed these burdensome liabilities and to compete on a more level playing field with others in our industry.
“The protections afforded by Chapter 11 allow us to restore our focus on operations, improve our balance sheet and realize the full value of our businesses. In addition, the company will be better positioned to continue to provide its customers with the high quality products and exceptional services they have grown to expect from Solutia.
“When we successfully emerge from Chapter 11, Solutia’s employees, customers, and vendors can look forward to a company that can grow and compete successfully in its marketplaces,” Hunter said. “We appreciate the ongoing loyalty and support of our employees. Their dedication and hard work are critical to our success and integral to the future of the company. I would also like to thank our customers, vendors and business partners for their continued support during this process.”
