Solutia Strikes Deal with Monsanto and Unsecured C
St. Louis, Mo, June 7--Solutia has reached an agreement-in-principle with Monsanto Company and the Official Committee of Unsecured Creditors in its Chapter 11 case regarding the restructuring of the company.
This agreement will serve as the framework for Solutia's Plan of Reorganization, which will contain the complete terms of the company's restructuring. Solutia anticipates filing its Plan of Reorganization and Disclosure Statement with the Bankruptcy Court later this summer.
"This agreement-in-principle is a major milestone in the successful reorganization of Solutia. It provides significant relief from the historic liabilities that were a driving factor in our Chapter 11 filing, reduces the risk profile of the company in terms of contingent liabilities, and strengthens our balance sheet," said Jeffry N. Quinn, president and CEO, Solutia Inc.
"This agreement is in the best interests of Solutia, our employees, retirees and other stakeholders. In combination with the steps we continue to take to improve business performance and enhance our strategic and competitive position, this agreement provides a solid foundation for a reorganized Solutia that is positioned for success."
The agreement-in-principle provides for $250 million of new investment in reorganized Solutia. This investment will be in the form of a rights offering to unsecured creditors, who will be given the opportunity to purchase 22.7% of the common stock in the reorganized company.
The purchase price for this stock may or may not coincide with market value or with the reorganization value of the company as determined by the Bankruptcy Court.
Monsanto will backstop the rights offering (i.e. exercise the remaining rights if the offering is not fully subscribed). Of the proceeds from the rights offering, $200 million will be used post-emergence to satisfy specific liabilities as described below, and the remaining $50 million will be used post-emergence at the discretion of the reorganized company to provide additional funding for satisfaction of those liabilities.
The liabilities Solutia assumed at the time it was spun off from Pharmacia Corporation included retiree benefit obligations, environmental remediation and litigation. The agreement-in-principle addresses these liabilities as follows:
1) Pre-Spin retiree benefit obligations: $150 million of the proceeds from the rights offering will be used to satisfy, in part, retiree medical, disability and life insurance benefits of those individuals who receive these benefits from Solutia but who retired prior to the spinoff.
2) Environmental remediation: * Sites Never Owned or Operated By Solutia. Monsanto will be responsible for paying the remediation costs related to these sites.
* Anniston and Sauget Off-Site Environmental Remediation. $50 million of the proceeds from the rights offering would be used for off-site remediation in Anniston, Ala. and Sauget, Ill. After the proceeds from this portion of the rights offering are exhausted, Monsanto will pay the next $50 million in remediation costs at those sites, less certain expenses incurred at those sites during Solutia's Chapter 11 case. Solutia would then be responsible for the remediation costs at those sites up to a pre-determined level, after which Monsanto and Solutia would each pay for 50 percent of costs.
3) Litigation costs and toxic tort claims: Monsanto will contribute up to $107 million, minus certain related expenses incurred during Solutia's Chapter 11 case, to be used by Solutia to make distributions under its Plan of Reorganization to certain holders of unsecured claims, including current tort claims. Such unsecured creditors may also receive common stock in the reorganized company under Solutia's Plan.
