UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 17, 2003
SOLUTIA INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
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(STATE OF INCORPORATION)
001-13255 43-1781797
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(COMMISSION (IRS EMPLOYER
FILE NUMBER) IDENTIFICATION NO.)
575 MARYVILLE CENTRE DRIVE, P.O. BOX 66760, ST. LOUIS, MISSOURI 63166-6760
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(314) 674-1000
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
On December 17, 2003, Solutia Inc. announced that it and its 14 U.S.
subsidiaries (collectively, the "Debtors") have filed voluntary petitions
for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S.
Bankruptcy Court for the Southern District of New York (Case No. 0317949).
The Debtors remain in possession of their assets and properties and
continue to operate their businesses and manage their properties as
"debtors-in-possession" pursuant to Sections 1107(a) and 1108 of the
Bankruptcy Code. On December 17, 2003, the Company received a commitment for
up to $500 million in new debtor-in-possession financing, $350 million of
which will be used to refinance Solutia's existing credit facility. Such
commitment is subject to court approval. A copy of the press release is
filed as an exhibit to this Report on Form 8-K and is incorporated here by
reference.
ITEM 5. OTHER EVENTS.
On December 17, 2003, Solutia also issued a press release
announcing that it had reached an agreement with the required percentage of
holders of the Euro Notes issued by its subsidiary, Solutia Europe SA/NV,
that would allow Solutia Inc. to file for relief under Chapter 11 of the
U.S. Bankruptcy Code without causing acceleration of the Euro Notes. A copy
of the press release is filed as an exhibit to this Report on Form 8-K and
is incorporated here by reference.
Solutia has entered into confidentiality agreements with holders of
debt securities of Solutia and of Euro Notes issued by its subsidiary,
Solutia Europe SA/NV, as well as with financial and legal advisers to those
bondholders, which require Solutia to disclose material non-public
information provided to those parties during the course of negotiations with
them. This section of this Report on Form 8-K is being filed in order to
comply with that obligation.
The following will summarize and disclose material non-public
information provided to those bondholders and advisors.
1. In the view of the management of Solutia, the likely size of the
proof of claim to be filed by Monsanto/Pharmacia in the Chapter 11 case as a
result of rejection of the Distribution Agreement and treatment of the
legacy liabilities assumed by Solutia at the time of its spin as
pre-petition liabilities is between $2 billion and $4 billion. Solutia
management does not believe that such a proof of claim would be valid in its
entirety, and that elements thereof would be subject to factual and legal
challenge. Further, the amount of legacy liabilities that revert back to
Monsanto/Pharmacia will depend on decisions to be entered by the Bankruptcy
Court before which Solutia's Chapter 11 case is pending. The major elements
of such legacy liabilities would be environmental compliance and
remediation, litigation indemnification and benefit obligations to pre-spin
retirees of Monsanto Company assigned to Solutia at the time of its spin.
Solutia expects the annual cost of such legacy liabilities that will revert
to Monsanto/Pharmacia to be in excess of $100 million for each of the next
five years and to be very difficult to estimate thereafter.
2. At current earnings levels and with existing debt and other
unfunded obligations including pension, OPEB, environmental and litigation
obligations, Solutia believes that it is significantly overleveraged
compared to its peers.
3. A summary of possible illustrative recoveries of unsecured
claims in Solutia's Chapter 11 proceeding was disclosed to bondholders.
Without taking account of employee claims, taxes and administrative fees and
expenses, that illustrative recovery showed possible unsecured claim
recoveries in the range of between 6% and 40% of claims. If such an
illustrative analysis proved to be accurate, that would imply no recovery on
behalf of
equity in Solutia's Chapter 11 proceeding. These numbers are estimated
calculations based on multiple assumptions which may or may not be true in
actual fact as the Chapter 11 case develops.
4. Solutia believes that if Solutia Europe were required to file
for reorganization proceedings in Belgium, the recovery to holders of Euro
Notes would be substantially less than the principal amounts of the Euro
Notes. An illustrative analysis of what a liquidation of Solutia Europe
might result in for Euro Note holders was supplied to bondholders and that
analysis indicated a recovery of approximately 60% of the principal amount
of the Euro Notes. Such an analysis was based on multiple assumptions which
might or might not be true in an actual liquidation; it also assumed an
orderly, as opposed to forced liquidation of Solutia Europe.
5. Despite numerous efforts, Solutia has been unsuccessful in
achieving an out-of-court agreement in which Monsanto Company agreed to
assume responsibility for significant legacy liabilities, either
permanently, or on a temporary basis, in order to permit adequate time to
try to negotiate an out of court restructuring with Solutia's bondholders
and other constituencies. Monsanto has indicated to Solutia that it is
unwilling to assume such responsibility.
6. Solutia believes that if it were to sell Pharmaceutical Services
immediately, such sale would generate cash proceeds significantly less than
the current carrying value of the assets.
7. There is an intercompany promissory note issued by Solutia UK
Holdings Limited in favor of Solutia Services International in the principal
amount of 69 million Euros which can be and has been rolled over on a
monthly basis. If the agreement Solutia Europe and Solutia have reached with
the Ad Hoc Committee of Euro Note holders, disclosed in a December 17, 2003
press release of Solutia, is implemented, extending the maturity of that
note beyond December 2008 will constitute an event of default with regard to
the Euro Notes.
Cautionary Statement About Forward-Looking Statements
We make statements in this Report on Form 8-K that are considered
forward-looking statements under the federal securities laws. We consider
all statements regarding anticipated or future matters, including the
following, to be forward-looking statements: the likely size of the proof of
claim to be filed by Monsanto/Pharmacia in Solutia's Chapter 11 case, the
validity of such proof of claim, the estimated annual cost of legacy
liabilities that would revert to Monsanto/Pharmacia as a result of Solutia's
bankruptcy, illustrative recoveries of unsecured claims and equity holders
of Solutia, illustrative recoveries of the Euro Note holders in the event of
a bankruptcy filing by Solutia Europe, and the amount of proceeds that would
be generated by a sale of Pharmaceutical Services.
These statements are not guarantees of future performance or
outcomes. They represent our estimates and assumptions only on the date we
made them. There are risks, uncertainties and other important factors that
could cause actual performance or outcomes to be materially different from
our projections. These risks, uncertainties and factors include: (i) the
ability of Solutia to develop, prosecute, confirm and consummate one or more
Chapter 11 plans of reorganization; (ii) the potential adverse impact of the
Chapter 11 filing on Solutia's operations, management and employees, and the
risks associated with operating businesses under Chapter 11 protection;
(iii) the ability of Solutia to comply with the terms of the DIP financing
facility; (iv) world economic conditions, competitive pressures, gain or
loss of significant customers, labor relations and disruption of operations,
raw material and energy costs, currency and interest rate fluctuations,
success in implementing pricing actions and managing spending, operating
rates, cost of debt, environmental compliance and remediation and other
factors; (v) customer response to the Chapter 11 filing; and (vi) the orders
and decisions of the U.S. Bankruptcy Court. Other factors and assumptions
not identified above are also relevant to the forward-looking statements,
and if they prove incorrect, could also cause actual results to differ
materially from those projected.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits 99(a) and 99(b) listed below are filed as part
of this report.
Exhibit Number Description
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99(a) Press Release dated December 17, 2003, issued by Solutia Inc.
announcing its filing for relief under Chapter 11 of the
U.S. Bankruptcy Code
99(b) Press Release dated December 17, 2003, issued by Solutia Inc.
announcing agreement with Euro Note holders
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SOLUTIA INC.
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(Registrant)
/s/ Rosemary L. Klein
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Assistant Secretary
DATE: DECEMBER 17, 2003