C&EN: TODAY'S HEADLINES - SOLUTIA CLEARS UP DEBTS WOES FOR NOW

MARC REISCH

Last month, Solutia successfully raised $200 million in notes due in 2009 that will pay holders a hefty 13.5%. And it secured $600 million in credit from its bankers.

But, although Solutia has finally completed financial arrangements to satisfy current obligations, questions linger over its long-term ability to pay should it be held responsible in current and pending lawsuits stemming from a former polychlorinated biphenyl plant in Anniston, Ala.

Chief Financial Officer Robert A. Clausen admits that “today’s economic climate has made this [refinancing] challenging.” It has been especially challenging given Solutia’s PCB obligations, which were one reason why, early last month, credit ratings agency Fitch lowered ratings on some of Solutia’s secured bank debt from a “fairly weak” credit risk to a “significantly weak” risk.

When Solutia was spun off from Monsanto in 1997, it indemnified Monsanto—took on its financial responsibility—for costs associated with the PCB plant that Monsanto operated in Anniston until 1971. However, if Solutia is unable to pay, Monsanto and Pharmacia—which bought the old Monsanto two years ago—would be on the hook to pay PCB-related costs.

Now, the planned spin-off of Monsanto to shareholders on Aug. 13 and Pfizer’s pending acquisition of Pharmacia complicate matters. Pfizer is reluctant to admit that it could take on Pharmacia’s PCB liabilities if Monsanto were unable to pay. The new Monsanto has indemnified Pharmacia for any PCB-related costs should Solutia be unable to pay. But because Pharmacia bought the old Monsanto, “legally, Pharmacia is Monsanto,” Clausen says. And should Pfizer succeed in buying Pharmacia, “all liabilities go to the new Pfizer.”