Solutia Has A Plan

Solutia has filed a plan of reorganization with the U.S. Bankruptcy Court for the Southern District of New York. The plan funds retiree benefits, although at a reduced rate; has a provision to fund environmental remediation costs split between Solutia and former parent Monsanto; and assigns toxic tort litigation responsibility to Monsanto.

Solutia CEO Jeffry N. Quinn confidently predicts that "this plan of reorganization will enable Solutia to emerge from Chapter 11 later this year with an improved competitive position." Increasing the chances that Solutia could soon be free from court supervision is the fact that the plan has the support of not only Monsanto but also that of unsecured creditors and retirees.

However, two groups have initiated legal challenges that could delay resolution of Solutia's bankruptcy case, which is more than two years old. Investment banking firm JP Morgan, trustee for $455 million worth of Solutia bonds, contends that Solutia should treat those bonds as secured debt. If JP Morgan prevails in a case filed about a year ago, bondholders would recover 100 cents on the dollar instead of the 48 cents to 56 cents in the plan documents.

Current shareholders, who stand to lose their entire investment in Solutia, also have a beef. When it spun off from Monsanto in 1997, Solutia acquired all of Monsanto's legacy retiree and environmental obligations along with its chemical businesses. Shareholders contend that these obligations set up the firm for failure. Solutia's equity committee filed suit against Monsanto last year, and the wrangling could further delay Solutia's reorganization.

Still to come is a court hearing on the plan, approval from claim holders, and confirmation from the court before Solutia emerges from bankruptcy. "We expect some objections," a Solutia spokesman says, "but we hope to drive this thing through."