EXTRACT: As the three-year-old bankruptcy reorganization of Solutia Inc. nears the finish line, a dogged group of bondholders is poised to end up in the money while Monsanto Co. provides the purse.
GM WATCH COMMENT: When in September 1997 Monsanto spun off its industrial chemical and fibre divisions, it loaded the new company - Solutia - with a series of liabilities, including retiree health care and pensions, and environmental cleanup costs for its production of dioxins, asbestos and polychlorinated biphenyls, or PCBs.
These costs, totaling billions of dollars, drove Solutia into bankruptcy in December 2003. The bankruptcy triggered lawsuits, including one by pre-bankruptcy Solutia equity holders alleging Solutia was set up fraudulently and was doomed to fail under the financial weight of the liabilities that Monsanto loaded onto the new company.
Solutia unveils updated bankruptcy plan
ST. LOUIS POST-DISPATCH, December 29 2006 http://www.stltoday.com/stltoday/business/stories.nsf/0/D0BCACA60ADB73858625725300122E6E?OpenDocument
As the three-year-old bankruptcy reorganization of Solutia Inc. nears the finish line, a dogged group of bondholders is poised to end up in the money while Monsanto Co. provides the purse.
Chemical maker Solutia, based in Town and Country, on Thursday revealed an updated reorganization plan that includes a better deal for the bondholders: Their $455.4 million claim shifts from the general pool of unsecured debt to a special category entitling them to receive a greater amount.
Under the original plan, the bondholders would have received between 48 cents and 56 cents on the dollar. If the plan goes through, the bondholders will receive 80 cents on the dollar, in the form of 48.7 percent of the common shares of Solutia after the reorganization.
The bondholders are represented by indenture trustee JP Morgan Chase, which sued Solutia claiming its debt should be fully secured - and entitling it to full reimbursement. U.S. Bankruptcy Court Judge Prudence Carter Beatty heard the case in New York in May, but has urged the parties to settle rather than ruling.
Monsanto, which originally would have gotten half of Solutia's shares, would receive just under 23 percent under the new plan. As a result, Monsanto would receive only 44 percent of its claim of $382.8 million. In addition, Monsanto remains on the hook for environmental cleanups and lawsuits that Solutia is defending.
The revised plan calls for Solutia to emerge from bankruptcy by March 31, with 108.3 million common shares and a total stock value of $1 billion. Stakeholders - including Monsanto and the bondholders - would be given the chance to buy allocations of stock at a discounted rate.
Other stakeholders include general unsecured creditors, who would get 26 percent of Solutia's shares, a recovery of 63.5 cents on the dollar of their claims. A group of retirees would get 2 percent of shares, or 52 cents on the dollar.
Monsanto did not return calls seeking comment.
Hugh Grant, Monsanto's chairman, president and chief executive, has said it is in the company's best interest to see Solutia successfully emerge from bankruptcy.
The firms are related. Both once were part of the old Monsanto Co., a century-old conglomerate that made drugs, sweeteners, farm products and chemicals. They share liability for that company's retiree benefits and a legacy of environmental contamination, mainly due to the production of dioxins, asbestos and polychlorinated biphenyls, or PCBs.
In 1997, the old Monsanto spun off its chemical unit to create Solutia. In 2000, Monsanto merged with Pharmacia and Upjohn Inc. to form Pharmacia Corp. The agricultural division was launched as an independent company in 2000, bearing the Monsanto name. In 2003, Pfizer Inc. bought Pharmacia.
When Solutia was created it took on its parent's liabilities, which have cost billions of dollars and led to bankruptcy. If Solutia should liquidate, those liabilities flow to Monsanto under the terms of Monsanto's creation.
Monsanto, prosperous as the world's leading provider of biotech crops, has repeatedly stepped in to stanch the financial hemorrhaging of Solutia, which suffered under high raw material and energy costs, an economic downturn and the weight of its parent's liabilities.
Monsanto helped to settle a massive suit against Solutia over PCB contamination in Anniston, Ala. It also helps fund cleanups there and at other old manufacturing sites - which led to its bankruptcy claims against Solutia.
A second plan
There is a wrinkle in Solutia's latest reorganization plan: The chemical maker also is seeking a cash buyer for itself. Solutia would use those dollars, rather than shares of stock, to satisfy stakeholders.
In the same Securities and Exchange Commission filing that revealed the new plan, Solutia provided an update on the cash plan. Eighteen potential purchasers have expressed interest in Solutia. Some see it as a financial play, while others are chemical companies or entities with a strategic interest in acquiring Solutia's chemical, nylon and window film businesses.
Chief Executive Jeffry Quinn said last month he would prefer for Solutia to emerge in the hands of a single buyer who has an interest in seeing it succeed, rather than being parceled out to meet debt obligations.
Spokesman Dan Jenkins said Solutia is pursuing both paths in parallel. If a buyer does not emerge, the company will proceed with its equity-distribution reorganization plan.