EXTRACT: Solutia was loaded with its former parent's [ie Monsanto's] retiree health care, pension and environmental liabilities, including cleanups of polychlorinated biphenyls, or PCBs. These costs, totaling billions of dollars, drove Solutia into bankruptcy in December 2003.

If Solutia should fail altogether, the liabilities would flow to the new Monsanto under the terms of that company's creation.

Therein lies the heart of Solutia's reorganization: Monsanto will share legacy environmental-cleanup costs under both old and new reorganization plans. Along with Pharmacia, it also is defending a lawsuit by pre-bankruptcy Solutia equity holders who allege that Solutia was set up fraudulently and doomed to fail under the financial weight of the liabilities.
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Solutia will sell itself off in new plan
By Rachel Melcer ST. LOUIS POST-DISPATCH, 16 November 2006 http://www.stltoday.com/stltoday/business/stories.nsf/0/1E2D4D4DDCB7ECBB86257228000F302A?OpenDocument

After three years in reorganization, chemical maker Solutia Inc. is preparing to pay the piper in Bankruptcy Court. Under a dramatically revised plan, Solutia says it will sell itself off whole and hand out cash, rather than fragmented slices of equity, to satisfy stakeholders.

These stakeholders include Monsanto Co. of Creve Coeur, which under an earlier reorganization plan would have wound up owning as much as half of Solutia, which has its headquarters in Town and Country.

Solutia's chief executive, Jeffry Quinn, said Wednesday that the change is positive because Solutia could emerge from bankruptcy early next year, with a single owner or ownership group that wants to hold and nurture a chemical company.

If Solutia's case follows a traditional bankruptcy path, it will present a preferred partner to the bankruptcy judge - a chemical company that wants to acquire Solutia for strategic reasons, or a financial institution that would set up a private-placement offering of Solutia's stock to a select group of investors.

Under the previous scenario, stock in a reorganized Solutia would have been split among parties interested primarily in recouping their losses - and, in the case of Monsanto, paying off a pile of environmental liabilities.

Solutia and Monsanto share a heritage. They were part of a conglomerate, which also was called Monsanto, that made chemicals, drugs, sweetener and agricultural products. The chemical unit spun out in 1997 to form Solutia. The remaining parent merged in 2000 with Pharmacia - Upjohn Inc. to form Pharmacia Corp.; that company spun off the agriculture division as the new Monsanto in 2000.

However, Solutia was loaded with its former parent's retiree health care, pension and environmental liabilities, including cleanups of polychlorinated biphenyls, or PCBs. These costs, totaling billions of dollars, drove Solutia into bankruptcy in December 2003.

If Solutia should fail altogether, the liabilities would flow to the new Monsanto under the terms of that company's creation.

Therein lies the heart of Solutia's reorganization: Monsanto will share legacy environmental-cleanup costs under both old and new reorganization plans. Along with Pharmacia, it also is defending a lawsuit by pre-bankruptcy Solutia equity holders who allege that Solutia was set up fraudulently and doomed to fail under the financial weight of the liabilities. That dispute must be resolved for Solutia to emerge from reorganization, and settlement talks are continuing.

Monsanto also had offered to infuse Solutia with $250 million cash in exchange for up to half of its equity, but Monsanto made it clear that it had no long-term interest in owning or helping to run a chemical firm. Under the new plan, this cash would come from a new group of equity investors.

Under the new plan, it is unclear how much cash Monsanto will get for its cleanup assistance, which is estimated to cost more than $284 million, other than assurance the liabilities will not land wholly in its lap.

Monsanto spokeswoman Lori Fisher said the company is talking with Solutia about the new plan; it wants Solutia to successfully reorganize. But Monsanto has yet to review all the details, so "it's just too early" to comment further or express support.

Solutia said it had hoped to nail down full stakeholder support before making public the revised reorganization plan. It had expected that to come in the next few weeks.

But Solutia's hand was tipped by a committee of bondholders - profit seekers two or three bond sales removed from the company's pre-bankruptcy investors - who are asking for court approval to gain influence in the reorganization process, which so far has been solely in Solutia's hands. A hearing on their request is scheduled for today.

These bondholders claim their debt should be secured, and paid in full, rather than be unsecured and subject to a payment of 48 cents to 56 cents on the dollar. The Bankruptcy Court in New York heard their arguments in May, but has yet to rule, bringing the reorganization to a standstill.

Rather than face continued delay, Solutia proposes to reserve sufficient cash to pay off the bondholders if they prevail, while moving ahead with reorganization. If the bondholders lose, the cash would be divided among emerged Solutia's equity holders.

In a statement supporting the new plan, Quinn wrote, "I believed there was a substantial risk that the wear and tear on [Solutia], missed strategic opportunities and continued distraction of the bankruptcy would start to destroy enterprise value, to the detriment of all stakeholders."

And the company has much to lose. While in bankruptcy, it has trimmed unprofitable operations; expanded highly profitable growth product lines such as glass interlayers for cars and buildings; and brought on new managers with plans for growth.

In the first nine months of this year, Solutia reported net income growth of 150 percent, to $50 million despite record-high raw material and energy costs.

All of this has made the company more attractive to the kind of financial and chemical-industry investors Quinn said he would like to do business with. "The changes in our business plan, the changes in our business model and our strategy have - definitely created a more valuable enterprise," he said.