Solutia Proposal Anticipates Emergence from Bankruptcy by Q3 2007

Solutia Inc. in St. Louis, Mo., recently unfurled an ambitious new reorganization plan to pull itself out of bankruptcy by the third quarter of 2007.

If accepted by Bankruptcy Court of the Southern District of New York, the plan would shift responsibility of certain "legacy liabilities" to its former parent company, Monsanto, and provides for an infusion of $250 million in new investment.

In exchange for 20 percent of the stock in a reorganized Solutia, Monsanto will take responsibility for all current and future tort litigation costs arising from its chemical business prior to the separation from Monsanto. Monsanto would also assume responsibility for environmental remediation and cleanup of all sites under Solutia's purview at the time of the spinoff, which were never owned or operated by Solutia.

In total, the "legacy liabilities," which include retiree benefits for approximately 20,000 former employees of Monsanto, in addition to the above liabilities, cost Solutia an estimated $100 million annually, according to Solutia vice president of communications Paul Berra.

The restructured proposal also calls for $250 million in new investments for Solutia through a rights offering to certain unsecured creditors. With this offering, unsecured creditors will have the opportunity to purchase up to 27.9 percent of the common stock in the reorganized Solutia.

Approximately $175 million of the new investment would be put toward the retiree benefits, with another $75 million going toward remaining legacy liabilities not covered by Monsanto.

As a result of the proposed reorganization, Solutia, which has an enterprise value of $2.85 billion, anticipates a 31-percent increase in its rate of return, from 53 percent to 84 percent, according to Berra.

"With our current momentum, I believe Solutia will be able to emerge from chapter 11 as a strong and viable company in the third quarter," says Solutia chief executive officer Jeffry Quinn.


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