Solutia emerges from Chapter 11 bankruptcy; $2.05 billion exit package funded

By Caroline Salls

Pittsburgh, Feb. 28 - Solutia Inc. emerged from Chapter 11 bankruptcy Thursday, two days after receiving court approval of a settlement under which the company's exit financing lenders agreed to waive a market MAC, or material adverse change, provision and fund the $2.05 billion exit financing package.

"Solutia has emerged as a well-positioned specialty chemicals and performance materials company with market-leading global positions and a diverse portfolio of high potential businesses," chairman, president and chief executive officer Jeffry N. Quinn said in a company news release.

"We believe we are a stronger, healthier and more competitive company than at any point in our history. Over the past four years, we have transformed our portfolio through strategic acquisitions, internal investments, asset dispositions, and the re-deployment of significant nylon assets to higher-value uses."

During its time in Chapter 11, Solutia said it has diversified from both an end-market and a geographic perspective.

In 2007, the company's net sales from outside the United States were 55% of the company's total revenue, compared to 39% in 2003 when Solutia filed for bankruptcy.

The company said the increase has been driven primarily by its Asian growth strategy, as well as significant growth in Europe.

"During this period, we have made great strides in improving our financial position by reducing legacy liabilities, enhancing and focusing the business portfolio and delivering strong revenue and operating earnings growth and momentum," senior vice president and chief financial officer James M. Sullivan said in the release.

"With a strong balance sheet and more than 50% of our portfolio growing at greater than two times global GDP, we believe we are positioned to deliver increased shareholder value."

As previously reported, the U.S. Bankruptcy Court for the Southern District of New York confirmed Solutia's plan of reorganization on Nov. 29, but in late January, shortly before the Feb. 6 anticipated close of exit financing, the exit facility lenders notified Solutia they were refusing to provide the facility, citing a market MAC, or material adverse change, provision, which they said relieved them of their obligation to provide the financing.

Solutia subsequently filed a lawsuit against lenders Citigroup Global Markets Inc., Goldman Sachs Credit Partners LP and Deutsche Bank Securities Inc.

The lenders and the company agreed to settle the dispute on Monday, and Solutia's $2.05 billion exit facility was funded on Thursday.

The company said the exit financing is being used to pay creditors, as well as for ongoing operations.

Under the revised exit financing package, the lenders agreed to waive the market MAC provision that was contained within the original commitment letter and increase the size of the senior secured asset-based revolving credit facility to $450 million from $400 million.

Citigroup, Goldman and Deutsche will fund the entire package, which consists of the $450 million asset-based revolver as well as a $1.2 billion senior secured term loan that has an interest rate of Libor plus 500 basis points with a four-year Libor floor at 3.5%.

The funding package also includes a $400 million senior unsecured high-yield bridge facility.

In addition, the plan includes $250 million of new investment in the reorganized company in the form of a rights offering to noteholders and general unsecured creditors. They will be able to buy new common stock at a 33.3% discount to the implied equity value.

The rights offering will be backstopped by a group of creditors for which they will receive a fee of 2.50% and an allocation of 15% of the rights offering.

Part of the proceeds from the rights offering will be used to set up a $175 million trust to finance future retiree benefits.

The company announced in December that the rights offering had been fully subscribed.

The plan also provides that Monsanto will take on financial responsibilities in the areas of tort litigation and environmental remediation.

Plan creditor treatment

Treatment of creditors under the plan will include:

• Holders of priority non-tax claims, senior secured claims, secured note claims, convenience claims and CPFilms claims will recover 100% under the plan;

• NRD claims will be reinstated;

• Holders of debtor intercompany claims and Axio claims will receive no distribution under the plan;

• Holders of general unsecured claims will receive 31.4% of the new stock for a recovery of 83.1 cents on the dollar;

• Holders of noteholders claims will receive 43.8% of the new stock for a recovery of 88.4 cents on the dollar;

• Monsanto will receive up to $175 million in cash, to be reduced by any stock not taken up by equity holders in the rights offering;

• Current equity holders will receive 1% of the new stock, and those with stakes above a threshold will be able to buy up to 17% of the new stock for a possible 18% stake.

Current equityholders who own at least a specified number of shares will also receive five-year warrants for 7.5% of the common stock and the right to participate in a buyout for cash of general unsecured claims of less than $100,000 but more than $2,500 for a recovery of 52.35%, subject to the equityholders' election to sell their claims;

• Holders of retirees' claims will receive the benefits provided under the terms of the settlement between Solutia and its retirees, for a 69.8% recovery.

They will receive 2.01% of the new common stock, which will be deposited into a VEBA trust and used to pay retiree welfare benefits. This is in addition to the $175 million from the rights offering that will also be deposited into the trust; and

• Creditors backstopping the rights offering will own 4.7% of the new common stock.

According to the release, reorganized Solutia's new common stock is scheduled to begin trading on the New York Stock Exchange under the ticker symbol "SOA" on March 3.

The old Solutia stock was cancelled with the bankruptcy exit.

Solutia, a St. Louis-based manufacturer and provider of performance films, specialty chemicals and nylon products, filed for bankruptcy on Dec. 17, 2003. Its Chapter 11 case number is 03-17949.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.