Solutia replaces most CP with bank debt, won't renew $250 mln revolver

By Peter Heap

New York, Oct. 26 - Solutia Inc. said it has used bank borrowings to replace most of its outstanding commercial paper after Standard & Poor's downgraded its short-term and commercial paper ratings to A-3 from A-2. The St. Louis, Mo. chemical company added that it does not intend to renew a $250 million 364-day multi-currency revolving credit facility that expires in November and that it is currently amending its $800 million five-year revolving credit facility, with changes to include modified financial covenants.

S&P downgraded Solutia's short-term ratings on Aug. 24 and put the company's long-term ratings on negative outlook because of what the rating agency said was weaker than expected financial and operating performance.

In response, Solutia replaced "most" of its CP with borrowings under its $800 million bank facility, the company said in a filing with the Securities and Exchange Commission. At Sept. 30, it had short-term borrowings of $583 million, made up of $562 million drawn on the revolver and $21 million of CP. The figure increased from $485 million on Dec. 31, 2000 due to lower profitability, severance and other restructuring payments and an increase in overall working capital levels.

Both the $800 million five-year and $250 million 364-day facilities are with syndicates of commercial banks and can be used for working capital, commercial paper support and other general corporate purposes.

During the first quarter of 2001, Solutia amended the credit agreements to modify the financial covenants.

On Sept. 17 it received a 60-day waiver of the covenants for the third quarter, without which Solutia said it would not have met the required leverage coverage ratio.

The chemical company said it expects to complete an amendment of the $800 million facility in the fourth quarter.

In addition to modifying the covenants, Solutia said it expects borrowings will have to be collateralized.

The company added: "Solutia does not anticipate that future borrowings will be significantly limited by the terms of this amendment."

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