Solutia asks court to limit equity transfers for tax purposes

By Caroline Salls

Pittsburgh, Dec. 8 - Solutia Inc. requested court approval to limit some transfers of equity interests in the company to preserve its accumulated net operating losses (NOLs) for federal income tax purposes, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

According to the motion, the company can carry forward its NOLs to offset its future taxable income for up to 20 taxable years for about $268.7 million in potential tax savings that could be used in future years.

Solutia said these tax savings, and the accompanying increase in its cash flow, will greatly facilitate a successful reorganization.

The company said it wants to limit the equity transfers because it is concerned about the reduction in NOLs that could occur if the corporation experiences an "ownership change," which may limit the amount of NOLs that it can use to offset its taxable income.

Under the Internal Revenue Code, an "ownership change" occurs if, immediately after a testing date, and as measured during a rolling three-year testing period, the percentage of the corporation's stock held by shareholders owning 5% or more increases by 50 percentage points or more.

A hearing is scheduled for Feb. 1.

Solutia, a St. Louis-based manufacturer and provider of films, chemicals and nylon products, filed for bankruptcy on Dec. 17, 2003. Its Chapter 11 case number is 03-17949.

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