Solutia Inc. has improved its financial footing with a new, $350 million revolving credit facility, but the St. Louis-based maker of nylon resin and fiber is not out of the woods yet.
The new credit facility, announced Oct. 9, will be split between four banks and partially will be used to retire Solutia's former credit facility. Solutia also received a $67 million letter of credit from Astaris LLC, a phosphate-making joint venture with FMC Corp. That credit will be used to reduce the joint venture's debt, officials said.
After those deals, Solutia's unsecured debt will stand at $680 million. A $120 million interest payment is due next year.
Solutia's overall first-half sales improved 9 percent to $1.2 billion compared with the same period last year. It reduced its first-half loss from $130 million in 2002 to $57 million this year, although the 2002 figure included a $167 million loss from a change in accounting principles. Sales in integrated nylon - including nylon 6/6 resin - were up almost 11 percent in the first half, but the unit still posted a loss of $31 million. Integrated nylon accounted for about 58 percent of Solutia's first-half sales.
Michael Colella, commercial director for Solutia's nylon resin business said resin sales were ``up slightly'' vs. 2002.
``Our overall customer base has purchased over projections this year,'' said Colella. ``Automotive has been flat, but we've done fairly well in cable ties and injection molded parts for the electrical and electronic market.''
North American sales of nylon 6/6 were up almost 1 percent through July, according to the American Plastics Council in Arlington, Va. Sales of nylon 6 and 6/6 into consumer goods climbed more than 19 percent in that period, although sales in the dominant automotive/truck segment dropped almost 4 percent, according to APC.
The firm also cut 280 jobs during the second quarter in an attempt to reduce costs. Of the cuts, 200 came from a major restructuring at an acrylic fibers plant in Decatur, Ala., said Solutia spokeswoman Liesl Livingston. The other 80 came from various areas throughout the firm.
Like many specialty chemicals makers, Solutia has been hammered in 2003 by historically high prices for energy and raw materials and softening demand for its core products. The firm got a lift in August when it agreed to pay a $50 million settlement surrounding alleged polychlorinated biphenyl contamination at a plant in Anniston, Ala. The potential for larger losses in that case had limited Solutia's ability to act on long-term strategy issues.
But the settlement and refinancing did little to improve Solutia's third-quarter performance. Official results will not be out until Oct. 24, but Chairman and Chief Executive Officer John Hunter said in an Oct. 9 guidance release that Solutia expects to report losses of between $1.65 and $1.70 per share for the quarter.
In the release, Hunter said that Solutia officials believe the weak economic conditions that have hurt his firm ``will persist for some time to come.''
``They're in an extremely difficult situation,'' a resin industry source familiar with Solutia said. ``They've got a very mature portfolio and their model has to change.
``But that won't be easy, because they have a cash commitment for next year and they still have to deal with things like retirement plans and legacy costs. The plastic and fibers markets [Solutia] is in aren't conducive to high growth, so raising cash for an interest payment will be tough.''
Fitch Ratings, a Chicago-based credit rating firm, issued a negative rating on Solutia's debt in early August and maintained that rating after the Anniston settlement because of what Fitch described as ``weak earnings and cash flow generation.'' Fitch analyst Jennifer Crabb said that rating could be reviewed in light of the refinancing, but she added that the third-quarter warning would be taken into account as well.
