The change in outlook reflects continued weak financial performance and delays in selling non-strategic assets. Additionally, Moody's is concerned over Solutia's ability to meet the financial covenants in its credit facilities at year-end.
Solutia's debt remains elevated due to the Vianova acquisition in 1999. The combination of rising natural gas and energy prices, along with a slowdown in the US economy, has severely reduced the company's financial performance.
This decline is primarily due to substantially weaker results from the company's integrated nylon business, which accounts for roughly 45% of sales. Although margins in this business have rebounded due to lower raw material (propylene) prices, volumes are likely to remain weak due to the continued trough in the U.S. industrial economy.
In the third and fourth quarter, nylon margins are likely to expand moderately due to a further drop in propylene prices. While volumes in these businesses have suffered from the weakening of the U.S. economy and a strong U.S. dollar, margins have rebounded faster due to price increases and a stronger competitive position.
Moody's believes that the company's performance is likely to remain weak through the second half of the year; and therefore, the company's financial results will not improve sufficiently to meet the revised year-end requirements.
Solutia reported sales of $3.2 billion in 2000.
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