Louis Post Dispatch
cases could force Solutia into bankruptcy
Rachel Melcer Post-Dispatch
Inc. said that its pockets may not be deep enough to pay out the
hundreds of millions of dollars being asked of it in one liability
lawsuit and that it certainly can't accommodate the $3 billion attorneys
said they expect in another.
its second-quarter earnings report, filed Thursday with the Securities
and Exchange Commission, the chemical company said it might have
to turn those pockets inside-out and head into Chapter 11 bankruptcy
that could land the liability in the lap of another local company
once connected to Solutia, Creve Coeur-based Monsanto Co.
don't think, by putting (the possibility of bankruptcy) in written
words, it's any different than what people have been thinking and
talking about," said spokesman Glenn Ruskin on Friday at Solutia's
headquarters in Town and Country. "It is what it is. It's just
a very factual presentation of what's happening to us."
What's happening can be summed up in two words: polychlorinated
biphenyls, or PCBs.
is defending against two lawsuits - one at the state level, the
other federal - that claim the homes, health and mental state of
thousands of Anniston, Ala., residents were harmed by PCBs produced
in their community more than 30 years ago.
PCBs were made by the former Monsanto Co., a pharmaceutical, chemical
and agrochemical company that, over time, became three separate
companies: Pharmacia Corp. (now part of Pfizer Inc.), Solutia and
the "new" Monsanto.
a series of complex legal deals, Solutia agreed to take on liability
for PCB litigation, some retiree benefits and environmental cleanups
that had belonged to the parent. Since its 1997 spinoff into an
independent company, Solutia has spent an average of about $100
million a year on these liabilities, according to Thursday's filing.
most damning of these, clearly, is the litigation. After settling
two PCB liability cases for approximately $40 million each, the
company ran into the ongoing state-level Abernathy v. Monsanto case,
which has dragged on for more than 20 months and cost Solutia dearly.
Its stock price and credit ratings have plunged because of uncertainty
over the outcome.
the time of our spinoff, and with the economy being fine, these
were viewed as manageable cases," spokeswoman Liesel Livingston
Abernathy case "almost defies logic in the manner in which
it has been proceeding," Ruskin said. "I don't think anyone
predicted it would go the route it's going."
of Aug. 11, the jury had ruled that Solutia should pay $101 million
in compensatory damages to the first 509 of 907 plaintiffs who claim
property damage. Jurors have yet to hear arguments over personal
on the returns so far - which Solutia vows to appeal - attorneys
in the separate, federal-level case, Tolbert v. Monsanto, have told
Solutia they expect to receive $3 billion for their approximately
15,300 plaintiffs, the filing said.
that to Solutia's run-of-the-mill business woes - rising raw material
and energy costs, a floundering joint venture, competition from
overseas and the down economy - and the company is in dire straits.
executives made that clear in a July 30 conference call with analysts,
saying they would consider "all available alternatives"
to meet an impending cash crunch. In the SEC filing, they added
more ominous language, saying the alternatives are "including,
but not limited to, a potential reorganization under Chapter 11
of the Bankruptcy Code."
Stewart, plaintiff's attorney in the Abernathy case, apparently
took Solutia at its word. He did not return calls seeking comment.
according to Solutia's filing, Stewart filed a motion asking Calhoun
County Circuit Court Judge Joel Laird to sever Solutia from the
case, if it should file for Chapter 11 protection. A bankruptcy
filing would put an immediate stop to the trial and add plaintiffs
to a list of Solutia's unsecured creditors, unlikely to receive
the full value of their claims.
granted the motion Aug. 6 and also ordered that Pharmacia - and
anyone acting in concert with Pharmacia - should not be allowed
to seek an extension of the bankruptcy protection for themselves.
that's where Monsanto comes in.
the components of the old Monsanto separated, the new Monsanto wound
up second in line, after Solutia, in responsibility for the PCB
litigation. According to Monsanto's SEC filings, it is "required
to indemnify Pharmacia for liabilities that Solutia assumed (in
its spinoff) to the extent that Solutia fails to pay, perform or
discharge those liabilities."
week, Standard & Poor's Ratings Service dropped Monsanto's credit
ratings slightly and gave it a "negative" outlook, based
on concern over the PCB cases. Moody's Investors Service also reassessed
Monsanto but decided not to make any changes in its ratings.
said in filings that it might "take action" to reduce
the likelihood that it will be called upon to provide that indemnification
but did not specify what that might mean.
Aug. 4, Monsanto agreed to release Solutia from a $39.9 million
letter of credit that Solutia had been required to provide it in
dealing with a separate litigation.
the cancellation of that note, Solutia was left with $78 million
outstanding on a $180 million credit facility. So it can borrow
up to $102 million and has $84 million in cash and cash equivalents
pays bills and that pays people," Livingston said.
company will have to pay tens of millions of dollars in the second
half to meet obligations to Astaris, a joint venture, and to perform
certain environmental remediations. And it is trying to refinance
debt that will come due in late 2004 and early 2005 - a task made
harder with its repeatedly lowered credit ratings.
Solutia is proceeding as a going concern. It is not marching straight
toward bankruptcy, Livingston said.
a corporation, we're doing the right things," she said. "We're
going down a number of paths, bankruptcy obviously being one of
also agreed to settle a class-action lawsuit being brought by owners
of properties around Lay Lake, Ala., again over PCB contamination.
On Aug. 8, the company agreed to pay $5 million and said a "significant
percentage" of that would be covered by its insurance.
you look at the details, there are some really great things going
on," said Livingston, noting that sales rose to $1.2 billion
in the first half, though there was a $40 million net loss. The
company's glass innerlayers, for cars and buildings, are doing well.
And other product lines remain strong.
just so frustrating, working in an organization with great people,
great product lines ... and we've got this cloud hanging over us,"
the company is to recover, it will need to hang on to as many of
those people as possible. And, when it comes to its top executives,
Solutia's board of directors are willing to pay extra to ensure
that will happen.
company reached retention agreements with John Hunter, chairman,
president and chief executive, and Bob Clausen, vice chairman, chief
financial officer and chief accounting officer.
the next 30 months, each man will be paid cash incentives in installments.
On the first and second anniversaries of the agreements, each will
receive payments equal to his base pay - $800,000 in Hunter's case,
$500,000 in Clausen's. At the 30-month anniversary, each will receive
an additional payment equal to half his base pay.
board felt very strongly ... that it needed them," Ruskin said.
While Solutia's earnings have fallen, the board felt that was due
to conditions beyond the executives' control.
of that was explained to Solutia's employees in an e-mail from the
board, Ruskin said. Another e-mail warned them of the SEC filing
and its mention of a possible bankruptcy filing.
in all, Livingston said, they've taken it in stride.
really tends to calm things," she said. "And these are
some resilient people. We've been through a lot and people are willing
to work through it, as long as they feel they aren't being kept
in the dark."