Solutia exit facility in question, DIP trades down; Delta heads up; LCDX rallies with stocks

By Sara Rosenberg

New York, Jan. 23 - Solutia Inc.'s exit financing credit facility has hit a major snag as the banks are claiming that they are no longer obligated to provide the debt, while the company disagrees with that stance, and, as a result of the dispute, the company's debtor-in-possession facility moved lower in trading.

In other news, Delta Air Lines Inc.'s bank debt was a touch stronger on Wednesday after the company released positive financial results, although the movement may have had less to do with earnings and more to do with stocks being up.

Also in trading, LCDX 9 moved higher once stocks started to rally, while cash was choppy as some names improved and others fell.

Solutia's $1.6 billion exit financing senior secured credit facility is in trouble being that the lead banks and the company are arguing over whether the loan commitments are still valid, which in turn caused the company's debtor-in-possession term loan to slide lower in the secondary market, according to a trader.

The banks are arguing that an adverse change has occurred in the loan syndication, financial or capital markets since Oct. 25 that, in their reasonable judgment, materially impairs syndication of the proposed facility.

Under the credit facility commitment, if an adverse change has occurred since that Oct. 25 date, the banks are no longer obligated to provide the financing.

However, the company is saying that the ongoing conditions in the credit markets began long before Oct. 25 and, therefore, the banks are required to fund their commitments on or before the Feb. 29 deadline.

"While we disagree with the position asserted by the lead arrangers, we intend to continue to work with them to successfully syndicate the exit facility," Jeffry N. Quinn, chairman, president and chief executive officer of Solutia, said in a company news release.

According to a second market source, the banks' main priority right now is to resolve the issue with the company.

The credit facility in question, which launched on Jan. 7, consists of a $1.2 billion seven-year term loan B (B1/B+) talked at Libor plus 350 basis points with an original issue discount in the 96 context and a $400 million five-year asset-based revolver (Ba1) talked at Libor plus 175 bps.

In addition, the banks have committed to provide a $400 million senior unsecured bridge loan if a $400 million senior unsecured notes offering is not completed.

Citigroup, Goldman Sachs and Deutsche Bank are the joint lead arrangers and joint bookrunners on the debt.

Proceeds will be used to pay creditors under the company's plan of reorganization and to fund ongoing operations after its emergence from Chapter 11.

As a result of the financing argument, Solutia's effective date of its confirmed plan of reorganization and its emergence from Chapter 11 will be delayed from the previously anticipated Jan. 25 date.

In reaction to the news, the company's DIP term loan moved down to levels in the 95 bid, 97 offered context early on in the session but then rebounded to 97 bid, 99 offered when the stock market rallied, the trader said. However, the debt was still lower on a day-over-day basis given that it was previously being quoted near par, the trader added.

Solutia is a St. Louis-based manufacturer and provider of performance films, specialty chemicals and an integrated family of nylon products.

Delta inches higher

Also in trading Wednesday, Delta Air Lines' first- and second-lien debt was slightly stronger, spurred on by stocks gaining ground and possibly also helped by earnings results, according to a trader.

The first-lien loan was quoted at 92 bid, 93 offered and the second-lien term loan was quoted at 92½ bid, 93½ offered, with both of these tranches up about a quarter of a point on the day, the trader said.

For the fourth quarter, Delta reported a pre-tax loss of $105 million, an $80 million improvement compared to the prior-year period excluding reorganization items.

Net loss for the quarter was $70 million, or $0.18 per diluted share.

Operating expenses in the quarter increased 10%, or $445 million, over the prior-year period. Of this amount, increased fuel price represented almost $370 million, including fuel prices paid under contract carrier arrangements. The remainder of the increase in operating expense was primarily due to higher expenses related to the 4% increase in capacity during the quarter.

For full-year 2007, the Atlanta-based airline company reported pre-tax income of $1.8 billion. Excluding reorganization-related and certain items, pre-tax income was $625 million, a $1.1 billion improvement compared to 2006.

And, net income for the year was $1.6 billion, or $418 million excluding reorganization-related items.

As for the stock market, Nasdaq ended up 24.14 points, or 1.05%, Dow Jones Industrial Average ended up 298.98 points, or 2.50%, S&P 500 ended up 28.10 points, or 2.14%, and NYSE ended up 144.51 points, or 1.67%.

LCDX up with equities

The strong performance in stocks also helped LCDX 9 on Wednesday, pushing levels higher after a weak start to the day, according to traders.

The index went out around 94.05 bid, 94.30 offered, up from Tuesday's closing levels of 93.40 bid, 93.60 offered, traders said.

"It opened weaker at 93.10 [bid], 93.30 [offered] and then traded as low as 93," one trader remarked. "When the stock market bounced back, the index rallied."

Cash, on the other hand, was more spotty, with some things bid weaker and some things bid higher, depending on the name. Traders explained that there is still some price discovery going on and people seem to be sitting on the sidelines a bit more these days.

"Definitely saw LCDX rally. Did not see cash come back as much," a second trader added.

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