Solutia Inc., 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, the compa…
Solutia Inc., 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, the company informed on 7 June 2005. The 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 in summer 2005. “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 USD 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, USD 200 million will be used post-emergence to satisfy specific liabilities including retiree benefit obligations, environmental remediation and litigation, and the remaining USD 50 million will be used post-emergence at the discretion of the reorganized company to provide additional funding for satisfaction of those liabilities. On the question of pre-spin-off retiree benefit obligations, USD 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. As regards environmental remediation, Monsanto will be responsible for paying the remediation costs related to sites never owned or operated by Solutia. On the question of the Anniston, Alabama and Sauget, Illinois sites, USD 50 million of the proceeds from the rights offering would be used for off-site remediation. After the proceeds from this portion of the rights offering are exhausted, Monsanto will pay the next USD 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% of costs. On litigation costs and toxic tort claims, Monsanto will contribute up to USD 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. Solutia will remain responsible for and will continue to pay the USD 5 million annual installment and the education fund obligations relating to the August 2003 Anniston PCB settlement. “Importantly, this agreement-in-principle does not require a termination of our pension plan, and it ensures that all environmental obligations related to the historic chemical business of our former parent will be satisfied,” added Quinn. Under the agreement-in-principle, the reorganized company will be an independent, publicly traded company. Solutia“s secured debt and debtor-in- possession financing will be repaid in full from proceeds from an exit financing package to be arranged by the company to the extent that claims relating to such are allowed by the court. In consideration for its contributions described above, the resolution of its claim, and the settlement of ongoing and potential litigation in the case, among other things, Monsanto will receive common stock in the reorganized company. If Monsanto is required to make the full new money investment contemplated by the rights offering due to its backstop commitment, Monsanto“s equity interest in the reorganized company would be 52.5%. The holders of allowed unsecured claims would receive the remaining 47.5% of the common stock in the reorganized company. The ultimate equity ownership of both the holders of unsecured claims and Monsanto will be subject to adjustment based on the amount of allowed unsecured claims in the case. It is not contemplated that the holders of Solutia“s existing equity will receive any distribution. “Monsanto and the Unsecured Creditors“ Committee and their respective advisors have been very constructive in working with the company to reach this agreement-in-principle,” said Quinn. “We will continue to work with both of them and the other constituents in our case to confirm a plan of reorganization based on this agreement with the goal of emerging from Chapter 11 later this year.” Submission of a Disclosure Statement and a Plan of Reorganization as contemplated by this agreement-in-principle is subject to the approval of the board of directors of Solutia, the negotiation of definitive documents, and various other conditions and contingencies, some of which are not totally in the control of the company, Monsanto, or the Unsecured Creditors“ Committee. For example, certain other constituents in the case must agree to terms, which are conditions to the agreement-in-principle. In addition, the purchase price for the stock made available through the rights offering may or may not coincide with market value or with the reorganization value of the company as determined by the Bankruptcy Court. Confirmation of a Plan of Reorganization consistent with this agreement-in-principle is subject to various conditions, including Bankruptcy Court approval.