Burdened by corporate liabilities, nylon resin and fiber maker Solutia Inc. filed Dec. 17 for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.
St. Louis-based Solutia said it will continue to operate through the bankruptcy. In a Dec. 17 news release, officials said the decision to file was made because of legacy liabilities, which include litigation and settlement costs, environmental remediation and Monsanto retiree health-care obligations. The company took on the liabilities when it was spun off from Monsanto Co. in 1997.
``Solutia has spent approximately $100 million each year to service legacy liabilities that it was required to accept at the time of the spinoff,'' John Hunter, Solutia chairman, president and chief executive officer, said in the release. ``We simply could not continue to sustain our operations burdened by Monsanto's legacy liabilities, which, combined with the weakened state of the chemical manufacturing sector ... has prevented us from realizing Solutia's true value.
``The protections afforded by Chapter 11 allow us to restore our focus on operations, improve our balance sheet and realize the full value of our businesses,'' Hunter added.
To continue operating during bankruptcy, Solutia has received as much as $500 million in new debtor-in-possession financing. About $350 million of that amount will replace a senior credit facility Solutia obtained in October.
No job cuts or site closings are expected to result from the bankruptcy filing, Solutia spokesman Greg Wilson said by phone Dec. 17. The company expects to exit bankruptcy within two years.
Ian Julian, a nylon industry analyst with Chemical Market Associates Inc. in Houston, said he does not expect the filing to have any short-term effect on Solutia's nylon unit. But Julian added that increased costs of raw materials such as cyclohexane and ammonia could affect the firm's long-term profitability and determine when it could exit bankruptcy.
Solutia ranks as North America's second-largest maker of nylon 6/6 resin, trailing only DuPont Co. It makes molding-grade nylon in Pensacola, Fla., and fiber-grade nylon in Greenwood, S.C.
In the first nine months of 2003, Solutia lost $235 million, even though sales increased 6 percent to almost $1.8 billion. Sales through September in its integrated nylon unit - including nylon 6/6 resin and fibers - were up 7 percent from the year before, to slightly more than $1 billion.
The firm has cut almost 300 jobs this year to reduce costs. Last year, Solutia sold its 50 percent share in joint venture Advanced Elastomer Systems LP in Akron, Ohio, to partner ExxonMobil Chemical Co.
On Wall Street, the bankruptcy announcement seemed to have little impact on Solutia's per-share stock price, which remained around $2.50 in early trading Dec. 17. Solutia had been selling for as much as $10 per share as recently as January 2002.