Chicago, Dec 18--Fitch Ratings has downgraded Solutia Inc.'s senior secured credit facility rating to 'DDD' from 'B-' and the ratings on the senior secured and senior unsecured notes to 'D' from 'CCC'. The senior secured note rating applies to the 11.25% notes and the Euro Notes. The senior unsecured note rating applies to the 6.72% and 7.375% debentures. The Negative Rating Watch has been removed.
The ratings downgrade reflects Solutia's recent Chapter 11 bankruptcy filing and continued weak operating performance. The senior secured credit facility rating is two notches above the senior secured and unsecured notes rating, reflecting the credit facility's collateral and potential recovery position.
Fitch expects the existing credit facility to be fully repaid by debtor-in-possession financing pending bankruptcy court approval. The Euro Note holders have agreed to modify their agreement with Solutia to eliminate cross-default provisions and extend maturity to 2008. The required percentage of Euro Note holders adopted resolutions which eliminate through Jan. 30, 2004 the ability to accelerate and default the Euro Notes due to Chapter 11 filing by Solutia; the second step of this Euro Note agreement will be implemented in a second meeting of Euro Note holders no later than Jan. 29, 2004.
Fitch believes the amended Euro Notes constitute distressed debt exchange since Solutia negotiated the amendment to avoid default and the note holders will experience delayed principal recovery. Although polychlorinated biphenyl-related litigation had been recently settled, Solutia continues to struggle through poor profitability during the cyclical downturn.
