Exhibit 99.3
[Solutia logo]
Preliminary exit financing observations and
illustrative debt capacity analysis
[Rothschild logo]
Exit financing observations
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PRELIMINARY EXIT FINANCING OBSERVATIONS
ROTHSCHILD AND SOLUTIA HAVE PROVIDED FIVE MARKET LEADING POTENTIAL EXIT
FINANCING LENDERS WITH SELECTED SOLUTIA FINANCIAL AND OPERATING DATA
* Based on these materials and current capital market conditions, these
lenders provided preliminary proposals regarding Solutia's capital
structure at emergence
* These proposals validate Solutia's current pro forma net leverage
assumption at exit of approximately $1.65 billion of net debt
* The following chart provides an illustrative debt capital structure based
on a composite of the preliminary proposals the Company has received to
date
PRELIMINARY ILLUSTRATIVE DEBT CAPITAL STRUCTURE(1) ($ IN MILLIONS)
TRANCHE SIZE ILLUSTRATIVE RATE TERM
- ------------------------------------------------------ ----------------- -----------------
Bank debt
Revolver(2) $254 L + 150 bps 5 years
Term Loan B 600 L + 225 bps 7 years
Euro-denominated Term Loan 400 E + 225 bps 7 years
Maryville Note 20 7.20% 20 years
Unsecured Bonds 400 10.00% 10 years
------
TOTAL PRO FORMA DEBT AT EMERGENCE $1,674
======
Less: Post-emergence cash balance (25)
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TOTAL PRO FORMA NET DEBT AT EMERGENCE $1,649
======
<FN>
(1) Debt capital structure reflects preliminary illustrative capital structure
based on a composite of recently received bank proposals
(2) Amount drawn at emergence. Illustrative sizing of $400 million
[Solutia logo] 1 [Rothschild logo]
Preliminary illustrative sources and uses
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PRELIMINARY ILLUSTRATIVE SOURCES AND USES
Assumes standalone
reorganization with
emergence at 6/30/2007
The following chart illustrates the hypothetical sources and uses at emergence
based on the following key assumptions:
* Emergence date of 6/30/2007
* Solutia purchases Akzo Nobel's 50% ownership interest in Flexsys
* Sale of the Dequest business for net proceeds of approximately $60 million
* Excludes any treatment of claims asserted by Monsanto, General Unsecured
Claimants, holders of the 2027 and 2037 Bonds and Retirees, and excludes
any treatment of "Funding Co." needs
PRELIMINARY ILLUSTRATIVE SOURCES AND USES ANALYSIS ($ IN MILLIONS)
SOURCES AMOUNT USES AMOUNT
- ------------------------------------------------------- -------------------------------------------------------------
New Exit Facility(1) $1,654 Refinance DIP Facility(3) 975
Implies funding need of $1,674 million Assumed Flexsys Debt 200
at emergence Refinance 2009 Notes(4) 223
Maryville Lease Facility 20 Refinance Euro Loan(5) 210
Available Cash 176 2007 & 2008 Pension Contribution 103
Net Proceeds from Sale of Dequest(2) 60 Maryville Lease Facility 20
Admin and priority costs, financing costs,
professional fees & other emergence costs(6) 154
Minimum cash balance 25
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TOTAL USES $1,910
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TOTAL SOURCES $1,910
======
<FN>
(1) Based on management estimates
(2) On March 12, 2007, Solutia reached a definitive agreement to sell the
Dequest business to Thermphos Trading GmbH for net proceeds of
approximately $60 million
(3) Includes $150 million of Flexsys acquisition debt. Assumes emergence date
of 6/30/2007
(4) Portion of unamortized discount may be subject to litigation
(5) Balance as of 12/31/2006
(6) Includes administrative and priority claims, debt issuance costs,
professional fees and other emergence costs
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[Solutia logo] 2 [Rothschild logo]
Summary debt capacity analysis
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COMPARABLE COMPANY LEVERAGE AND COVERAGE RATIOS
NET DEBT+ TOTAL DEBT+ TOTAL DEBT+
S&P TOTAL DEBT/ NET DEBT/ PENSION(1)/ PENSION(1)/ OPEB(2)/
RATING EBITDA EBITDA EBITDA EBITDA EBITDA
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Commodity Companies
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Eastman BBB 1.7x 0.7x 1.0x 2.0x 2.3x
Westlake Chemical Corp. BB+ 0.6x 0.5x 0.5x 0.7x 0.7x
Celanese Corp. BB- 3.2x 2.5x 2.8x 3.5x 3.5x
Georgia Gulf BB- 4.2x 4.1x 4.1x 4.2x 4.2x
Huntsman Corp. BB- 3.3x 2.4x 2.7x 3.6x 3.6x
Lyondell Chemical Co. BB- 2.7x 2.2x 2.4x 2.9x 2.8x
Nova Chemicals Corp. BB- 2.7x 2.6x 2.6x 2.7x 2.8x
Wellman B- 16.3x 16.3x 16.7x 16.7x 16.3x
HIGH 16.3x 16.3x 16.7x 16.7x 16.3x
AVERAGE 4.3x 3.9x 4.1x 4.6x 4.5x
MEDIAN 3.0x 2.4x 2.7x 3.2x 3.1x
LOW 0.6x 0.5x 0.5x 0.7x 0.7x
Specialty Companies
- ------------------------
PPG A 0.8x 0.5x 0.8x 1.1x 1.4x
Rohm & Haas A- 1.3x 1.0x 1.0x 1.3x 1.4x
Albemarle BBB- 1.9x 1.5x 1.6x 2.0x 2.1x
Cytec BBB- 2.1x 2.1x 2.5x 2.5x 2.4x
FMC Corp. BBB- 1.4x 1.0x 1.2x 1.6x 1.5x
Lubrizol Corp. BBB- 2.8x 1.7x 2.1x 3.1x 2.9x
Chemtura BB+ 2.5x 2.3x 2.9x 3.1x 2.8x
Hercules BB 2.7x 2.2x 2.8x 3.3x 3.1x
Rockwood Holdings B+ 5.3x 4.3x 4.9x 5.8x 5.3x
Nalco Holding Co. B+ 4.7x 4.6x 5.1x 5.1x 4.8x
Arch Chemicals NR 1.7x 0.5x 1.1x 2.3x 1.8x
HIGH 5.3x 4.6x 5.1x 5.8x 5.3x
AVERAGE 2.5x 2.0x 2.4x 2.8x 2.7x
MEDIAN 2.1x 1.7x 2.1x 2.5x 2.4x
LOW 0.8x 0.5x 0.8x 1.1x 1.4x
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ALL COMPARABLE COMPANIES
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HIGH 16.3x 16.3x 16.7x 16.7x 16.3x
AVERAGE 3.3x 2.8x 3.1x 3.6x 3.5x
MEDIAN 2.7x 2.2x 2.5x 2.9x 2.8x
LOW 0.6x 0.5x 0.5x 0.7x 0.7x
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TOTAL DEBT+
PENSION(1)+ EBITDA-
OPEB(2)/ EBITDA/ CAPEX/ NET DEBT/
EBITDA INTEREST INTEREST TOTAL CAP.(3)
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Commodity Companies
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Eastman 2.6x 11.7x 6.8x 10.9%
Westlake Chemical Corp. 0.7x 25.0x 16.7x 10.4%
Celanese Corp. 3.8x 4.3x 3.3x 34.8%
Georgia Gulf 4.2x 4.0x 3.4x 73.4%
Huntsman Corp. 3.8x 3.1x 1.6x 37.5%
Lyondell Chemical Co. 3.0x 5.0x 4.3x 45.6%
Nova Chemicals Corp. 2.8x 4.1x 3.0x 39.8%
Wellman 16.7x 0.6x 0.5x 84.5%
HIGH 16.7x 25.0x 16.7x 84.5%
AVERAGE 4.7x 7.2x 4.9x 42.1%
MEDIAN 3.4x 4.2x 3.3x 38.7%
LOW 0.7x 0.6x 0.5x 10.4%
Specialty Companies
- ------------------------
PPG 1.7x 20.5x 16.0x 6.6%
Rohm & Haas 1.4x 16.6x 12.4x 11.4%
Albemarle 2.1x 8.6x 6.4x 12.6%
Cytec 2.8x 8.0x 6.2x 24.0%
FMC Corp. 1.6x 13.9x 10.4x 13.3%
Lubrizol Corp. 3.2x 7.0x 5.3x 20.5%
Chemtura 3.4x 4.4x 3.1x 27.5%
Hercules 3.6x 5.2x 3.9x 25.1%
Rockwood Holdings 5.8x 2.7x 1.9x 52.2%
Nalco Holding Co. 5.3x 3.0x 2.6x 47.5%
Arch Chemicals 2.4x 6.2x 4.9x 7.7%
HIGH 5.8x 20.5x 16.0x 52.2%
AVERAGE 3.0x 8.7x 6.6x 22.6%
MEDIAN 2.8x 7.0x 5.3x 20.5%
LOW 1.4x 2.7x 1.9x 6.6%
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ALL COMPARABLE COMPANIES
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HIGH 16.7x 25.0x 16.7x 84.5%
AVERAGE 3.7x 8.1x 5.9x 30.8%
MEDIAN 3.0x 5.2x 4.3x 25.1%
LOW 0.7x 0.6x 0.5x 6.6%
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<FN>
Source SEC filings, annual and quarterly reports, press releases, research
reports
(1) Calculated as underfunded pension as of fiscal year end. Implied interest
expense, calculated as the underfunded pension multiplied by the PBO
discount rate, is added back to EBITDA
(2) Calculated as unfunded OPEB expense as of fiscal year end. Implied
interest expense, calculated as the unfunded OPEB expense multiplied by
the discount rate, is added back to EBITDA
(3) Calculated as net debt plus market value of equity
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[Solutia logo] 3 [Rothschild logo]
Summary debt capacity analysis
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COMPARABLE COMPANY LEVERAGE AND COVERAGE RATIOS (CONT'D)
Assumes $1,674
million debt balance
at emergence.
Positive free cash
flow is assumed to
pay down debt over
time for illustrative
purposes only
TOTAL DEBT / EBITDA
[bar chart]
Comparable companies Solutia
- ------------------------ ------------------------
Median 2.7x At emergence(1) 4.6x
Average 3.3x 2008P 3.4x
NET DEBT / EBITDA
[bar chart]
Comparable companies Solutia
- ------------------------ ------------------------
Median 2.2x At emergence(1) 4.5x
Average 2.8x 2008P 3.3x
EBITDA / INTEREST
[bar chart]
Comparable companies Solutia
- ------------------------ ------------------------
Median 5.2x At emergence(1) 2.7x
Average 8.1x 2008P 3.4x
EBITDA - CAPEX / INTEREST
[bar chart]
Comparable companies Solutia
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Median 4.3x At emergence(1) 2.2x
Average 5.9x 2008P 2.3x
<FN>
(1) Assumes standalone reorganization with emergence at 6/30/2007
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[Solutia logo] 4 [Rothschild logo]
Summary debt capacity analysis
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COMPARABLE COMPANY LEVERAGE AND COVERAGE RATIOS (CONT'D)
TOTAL DEBT + PENSION(1) / EBITDA
[bar chart]
Comparable companies Solutia
- ------------------------ ------------------------
Median 2.9x At emergence(3) 5.0x
Average 3.6x 2008P 3.8x
TOTAL DEBT + OPEB (2) / EBITDA
[bar chart]
Comparable companies Solutia
- ------------------------ ------------------------
Median 2.8x At emergence(3) 5.0x
Average 3.5x 2008P 3.7x
TOTAL DEBT + PENSION(1) + OPEB(2) / EBITDA
[bar chart]
Comparable companies Solutia
- ------------------------ ------------------------
Median 3.0x At emergence(3) 5.4x
Average 3.7x 2008P 4.1x
NET DEBT / TOTAL CAPITALIZATION
[bar chart]
Comparable companies Solutia
- ------------------------ ------------------------
Median 25.1% At emergence(3) 58.0%
Average 30.8% 2008P 54.8%
<FN>
(1) Calculated as underfunded pension as of fiscal year end. Implied interest
expense, calculated as the underfunded pension multiplied by the PBO
discount rate, is added back to EBITDA
(2) Calculated as unfunded OPEB expense as of fiscal year end. Implied
interest expense, calculated as the unfunded OPEB expense multiplied by
the discount rate, is added back to EBITDA
(3) Assumes standalone reorganization with emergence at 6/30/2007
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[Solutia logo] 5 [Rothschild logo]
Summary debt capacity analysis
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ILLUSTRATIVE DEBT CAPACITY ANALYSIS
($ in millions)
DEBT/EBITDA
2007P EBITDA(1)
ILLUSTRATIVE EBITDA RANGE $398 $350 $375 $400 $425 $450
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DEBT/
EBITDA
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3.50x $1,394 $1,225 $1,313 $1,400 $1,488 $1,575
3.75x 1,493 1,313 1,406 1,500 1,594 1,688
4.00x 1,593 1,400 1,500 1,600 1,700 1,800
4.25x 1,692 1,488 1,594 1,700 1,806 1,913
IMPLIED TOTAL DEBT 4.50x 1,792 1,575 1,688 1,800 1,913 2,025
4.75x 1,892 1,663 1,781 1,900 2,019 2,138
5.00x 1,991 1,750 1,875 2,000 2,125 2,250
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3.50x ($280) ($449) ($362) ($274) ($187) ($99)
3.75x (181) (362) (268) (174) (80) 14
EXCESS/(SHORTFALL) OVER CURRENT 4.00x (81) (274) (174) (74) 26 126
PROJECTED DEBT AT EMERGENCE 4.25x 18 (187) (80) 26 132 239
OF $1,674 MILLION 4.50x 118 (99) 14 126 239 351
4.75x 218 (12) 107 226 345 464
5.00x 317 76 201 326 451 576
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<FN>
(1) Based on 2007E EBITDA of approximately $398 million
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[Solutia logo] 6 [Rothschild logo]
Summary debt capacity analysis
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ILLUSTRATIVE DEBT CAPACITY ANALYSIS (CONT'D)
($ in millions)
EBITDA/INTEREST
2007P EBITDA(1)
ILLUSTRATIVE EBITDA RANGE $398 $350 $375 $400 $425 $450
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EBITDA/
INTEREST
-------- -----------------------------------------------------------
2.00x $199 $175 $188 $200 $213 $225
2.25x 177 156 167 178 189 200
2.50x 159 140 150 160 170 180
TOTAL INTEREST 2.75x 145 127 136 145 155 164
3.00x 133 117 125 133 142 150
3.25x 123 108 115 123 131 138
3.50x 114 100 107 114 121 129
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2.00x $2,342 $2,059 $2,206 $2,353 $2,500 $2,647
2.25x 2,082 1,830 1,961 2,092 2,222 2,353
IMPLIED TOTAL DEBT 2.50x 1,874 1,647 1,765 1,882 2,000 2,118
AT A 8.5% 2.75x 1,704 1,497 1,604 1,711 1,818 1,925
INTEREST RATE(2) 3.00x 1,562 1,373 1,471 1,569 1,667 1,765
3.25x 1,441 1,267 1,357 1,448 1,538 1,629
3.50x 1,339 1,176 1,261 1,345 1,429 1,513
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2.00x $668 $385 $532 $679 $826 $973
2.25x 408 156 287 418 548 679
EXCESS/(SHORTFALL) OVER CURRENT 2.50x 200 (27) 91 208 326 444
PROJECTED DEBT AT EMERGENCE 2.75x 30 (177) (70) 37 144 251
OF $1,674 MILLION 3.00x (112) (301) (203) (105) (7) 91
3.25x (233) (407) (317) (226) (136) (45)
3.50x (335) (498) (413) (329) (245) (161)
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<FN>
(1) Based on 2007E EBITDA of approximately $398 million
(2) Per management guidance. For illustrative purposes only
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[Solutia logo] 7 [Rothschild logo]
Summary debt capacity analysis
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ILLUSTRATIVE DEBT CAPACITY ANALYSIS (CONT'D)
($ in millions)
EBITDA - CAPEX/INTEREST
2007P EBITDA(1)
ILLUSTRATIVE EBITDA RANGE $398 $350 $375 $400 $425 $450
- -------------------------------------------------------------------------------------------------------------------------
EBITDA- CAPEX/
INTEREST(2)
----------- -----------------------------------------------------------
1.00x $246 $198 $223 $248 $273 $298
1.25x 197 158 178 198 218 238
1.50x 164 132 149 165 182 199
TOTAL INTEREST 1.75x 141 113 127 142 156 170
2.00x 123 99 111 124 136 149
2.25x 109 88 99 110 121 132
2.50x 98 79 89 99 109 119
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- -------------------------------------------------------------------------------------------------------------------------
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1.00x $2,896 $2,328 $2,622 $2,917 $3,211 $3,505
1.25x 2,316 1,863 2,098 2,333 2,569 2,804
IMPLIED TOTAL DEBT 1.50x 1,930 1,552 1,748 1,944 2,140 2,337
AT A 8.50% 1.75x 1,655 1,330 1,499 1,667 1,835 2,003
INTEREST RATE(3) 2.00x 1,448 1,164 1,311 1,458 1,605 1,752
2.25x 1,287 1,035 1,166 1,296 1,427 1,558
2.50x 1,158 931 1,049 1,167 1,284 1,402
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- -------------------------------------------------------------------------------------------------------------------------
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1.00x $1,222 $654 $948 $1,243 $1,537 $1,831
1.25x 642 189 424 659 895 1,130
EXCESS/(SHORTFALL) OVER CURRENT 1.50x 256 (122) 74 270 466 663
PROJECTED DEBT AT EMERGENCE 1.75x (19) (344) (175) (7) 161 329
OF $1,674 MILLION 2.00x (226) (510) (363) (216) (69) 78
2.25x (387) (639) (508) (378) (274) (116)
2.50x (516) (743) (625) (507) (390) (272)
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<FN>
(1) Based on 2007E EBITDA of approximately $398 million
(2) Based on 2007E Capital Expenditures of approximately $152 million
(3) Per management guidance. For illustrative purposes only
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[Solutia logo] 8 [Rothschild logo]