Solutia equity committee slams reorganization plan, calls Monsanto's contributions "largely illusory"

New York, March 10 - Solutia Inc.'s official committee of equity security holders condemned the company's proposed plan of reorganization and said the proposed contributions from Monsanto Co. are "largely illusory."

It added that they "do not come close to justifying the settlement and resolution of a litigation that could return far more value to these estates."

Rather than the "billions" the committee believes could be raised through legal action against Monsanto, the company makes only a "negligible contribution" in return for releases from liability.

In a status report filed with the U.S. Bankruptcy Court for the Southern District of New York, the committee presented its analysis of Monsanto's proposed payments:

• Monsanto's $250 million to Funding Co., of which $175 million will go to a retiree trust, $50 towards environmental liability to shared sites and $25 for miscellaneous legacy liabilities is not for the company's responsibility, the committee said, but payment for 22.7% of the stock in reorganized Solutia to be obtained in a rights offering. If the rights offering is fully subscribed Monsanto will pay none of the $250 million. If the offering is not fully subscribed, Monsanto receives stock which the committee said is valued at $250 million but is "probably worth much more";

• Monsanto's $12.5 million backstop fee for the rights offering adds "insult to injury." The committee said it is "no wonder" Monsanto is now prepared to waive the fee if the $12.5 million is counted towards its contribution;

• The committee sees Monsanto's "only legitimate contributions" for potential liability are the acceptance of the tort liability, acceptance of responsibility for the category B legacy environmental liabilities, its additional $50 million (of which $32 has already been contributed towards the shared sites; and therefore credited), and its agreement to share responsibility 50/50 with reorganized Solutia for the shared sites after reorganized Solutia has spent $325 million for those liabilities.

But it noted that Monsanto created those legacy liabilities long before it span off Solutia.

The committee said it believes the shared sites have the largest liability - and said that the proposed plan puts most of the responsibility on Solutia. Of Monsanto's proposed first $100 million, $50 million comes from the rights offering so the cash may not come from Monsanto at all. If it does, Monsanto receives stock in return.

The category B sites were sold or abandoned "long before" Solutia was spun off and so will become less expensive over time, the committee added.

Solutia filed the proposed plan of reorganization and disclosure statement on Feb. 14.

According to a company news release, the plan has the support of the official committee of unsecured creditors, Monsanto Co., Pharmacia Corp. and the official committee of retirees.

According to the release, the plan will provide Solutia with significant relief from the legacy liabilities it was required to assume when spun off from Pharmacia (formerly known as Monsanto) in 1997, including retiree medical, retiree life insurance and disability benefits for employees who retired or became disabled before the spinoff; environmental remediation costs related to activities of the chemicals business of Pharmacia and toxic tort litigation costs relating to chemical exposure associated with the activities of Pharmacia.

Under the plan, Solutia's senior secured notes and debtor-in-possession financing will be repaid in full from proceeds from an exit financing package to be arranged by the company.

The holders of general unsecured claims would receive the remainder of the stock in the reorganized company.

Holders of equity interests in Solutia will receive no distributions under the plan.

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

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