Solutia bonds slide after Chapter 11; Parmalat dodges bullet but bonds lower

By Paul Deckelman

New York, Dec. 17 - The bonds of troubled chemical maker Solutia Inc. fell sharply after the company filed for Chapter 11 on Wednesday, driven into bankruptcy by environmental "legacy" costs and retiree pension obligations it inherited from former corporate parent Monstanto Co. when it was spun off six years ago. Also lower was the debt of Italian dairy products producer Parmalat, even though the company reportedly was able to convince investors in its Brazilian unit to not put their stake back to the cash-strapped company - at least for the moment.

Solutia and 14 U.S. subsidiaries sought protection from the company's junk bond holders and other creditors in a Chapter 11 filing with the U.S. Bankruptcy Court for the Southern District of New York, in Manhattan. The St. Louis-based chemical maker, which was spun off from Monsanto in 1997, said that it said it had received a commitment for up to $500 million in debtor-in-possession financing and said that its worldwide operations would continue uninterrupted.

Solutia's bonds "were up and down like a yo-yo," a distressed-debt trader said. He saw the company's 11¼% senior notes due 2009 plunge as low as 67 bid, 70 offered from their Tuesday closing levels at 91 bid, 93 offered, and then firm off their lows to bounce most of the way back, to 87 bid, 89 offered.

However, he said, the company's 6.72% debentures due 2037, after opening at 78 bid, 81 offered, plunged as low as 45 bid, came off that low to ricochet back to around 58 bid, but then slid to 41 bid, 43 offered late in the session. While the senior notes ended not too far below where they had opened the day, "the juniors were a real roller-coaster," he opined.

Another trader agreed that "for the secured paper, I don't think [the move] was huge.

A market source saw the 6.72% notes having fallen to 40 bid from prior levels in the 70s, with the 7 3/8s also at that 40 mark, down from 60, while the 11¼% notes lost six points to finish at 86.

Yet another trader pegged Solutia's 7 3/8% debentures due 2027 as having fallen to 54.5 bid, 56 offered from opening levels around 60 bid, 62 offered, and saw the 11 1/4s ending down about four points on the day at 86.5 bid, 88.5 offered.

He also saw spreads over comparable Treasuries on Monsanto's investment-grade-rated bonds widening out investor fears that the St. Louis-based chemicals giant might have to incur some costs related to the bankruptcy of its problem child; Monsanto's 7 3/8% notes due 2012 widened 13 basis points to 108-101, while its 4% notes due 2008 tacked on about 10 bps, to 85-75.

In addition to around $673 million of dollar-denominated bond debt, Solutia also has €200 million of 6¼% eurobonds due 2005 outstanding; the company said that it had reached agreement with the holders of two-thirds of those notes to a restructuring that removes a cross-default provision in the notes, which would have resulted in default and acceleration of the notes upon the company's bankruptcy filing. The deal enabled Solutia to exclude its European operations from the bankruptcy filing.

Solutia further said that the euronote holders agreed to extend the maturity of the notes to 2008 from 2005 in return for a boost in the coupon to 10% and the company granting the noteholders security interests in most of the assets of Solutia Europe and its units.

Elsewhere, troubled European food processing giant Parmalat apparently managed to stave off disaster for the second time within a week; Reuters, quoting a "financial source," reported late in the day Wednesday that the company had managed to convince a group of institutional investors in its Brazilian unit to not force the company to buy back their 18.8% stake in the Brazilian company for $400 million. The news agency said that the unidentified investors did not pull the trigger on the put, but instead had "shown a willingness to continue with the negotiations" past the deadline.

It was the second time in less than a week that Parmalat had dodged a default bullet; last Friday it paid off a maturing €150 million bond issue four days past the official due date.

A trader quoted its dollar-denominated 6 5/8% notes due 2010 as having fallen to 54 bid, 55 offered from prior levels around 60 bid, 61 offered, although the fall is likely to have taken place before the news hit the tape that Parmalat would not have to come up with the $400 million - at least not yet.

A trader said all of Parmalat's bonds - all of the others are euro-denominated - were trading within a context of 53 to 58, depending upon their coupon and maturity, down about six points across the board from Tuesday's levels.

Revlon's bonds "bounced back a bit" Wednesday, a market source said, quoting the cash-starved New York cosmetics company's 8 5/8% notes due 2008 as having rebounded to 48 bid from prior levels at 43, while its 8 1/8% notes due 2006 climbed back to 68 bid from 66 on Tuesday.

A trader saw the volatile 8 5/8% notes at 44 bid, 47 offered and the 8 1/8s at 65 bid, 68 offered, but allowed that "maybe they were a couple of point better on the news that the company is going to try to equitize its debt."

On Tuesday, Revlon said that its board had agreed to look into ways to improve the company's balance sheet, including possibly issuing new stock or new debt in exchange for cash or for existing bonds.

A trader called WorldCom Inc. "a bit of a roller coaster," quoting the telecom giant's bonds down about a point in morning trading at 32.5 bid, 33 offered, but then coming back to recoup much of the loss and end at 33.125 bid, down about 3/8 point on the session. He saw WorldCom's MCI unit's bonds unchanged at 80.125 bid, 80.875 offered.

United Airlines announced that it had lined up $2 billion in Chapter 11 exit financing, said that it would seek $1.6 billion of federal loan guarantees and added that it was on course to cut costs by $5 billion a year by the end of 2005.

A distressed-debt trader quoted the bankrupt Chicago-based air carrier's notes at 12.5 bid, 14.5 offered, essentially where they already were trading recently.

"With all of that news out," he said, "one would think that it would trade up. But nothing happened."

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