SK Capital Partners has agreed to buy the nylon business of Solutia Inc. (NYSE: SOA). The deal includes a $50 million up-front cash payment and $4 million in deferred cash payments. Solutia also will receive a 2% equity stake in the newly-independent company. HSBC Securities (USA) advised Solutia on the deal.
Solutia Inc. (NYSE: SOA) today announced it has entered into a definitive agreement to sell its nylon business to an affiliate of SK Capital Partners II, L.P., a New York-based private equity firm that is focused on the chemical, material and health care sectors. At the closing of the sale, Solutia will receive $50 million in cash and a two percent equity stake in a new company formed to hold substantially all of the assets of the nylon business. Solutia will also receive $4 million in deferred cash payments to be paid in annual $1 million installments beginning in 2011. The agreement includes a minimum level of working capital to be delivered at closing, which is approximately $100 million lower than the actual reported balance at the end of 2008 and approximately $25 million lower than the expected balance at the end of the first quarter. The affiliate of SK Capital will assume substantially all of the liabilities of the nylon business, including employee and pension liabilities relating to the active employees of the business, and environmental liabilities. Solutia will use the nylon sale proceeds to pay down debt under its asset-based revolving credit facility.
In addition, SK Capital will secure replacement of $25 million of letters of credit associated with the nylon business, which will result in increased availability for Solutia under its credit agreements.
“Following this divestiture, Solutia will have completed its transformation into a pure-play performance materials and specialty chemicals company, with a portfolio of high-value products with world-leading positions,” said Jeffry N. Quinn, chairman, president, and CEO of Solutia Inc. “Solutia is well positioned to generate consistent financial returns and to further develop and enhance its portfolio in the specialty chemicals sector.”
James M. Sullivan, executive vice president and CFO, Solutia Inc., added, “Despite the challenging global economic conditions, we are pleased to have reached an agreement with SK Capital that provides fair value to Solutia stakeholders and advances the overall strategic positioning of the company.”
Quinn added, “The nylon sale is a positive step toward securing Solutia’s future. We recognize that we are operating in an unprecedented economic environment and we remain focused on cost reduction, operational efficiency, cash flow generation, liquidity, and covenant compliance.”
The nylon business sale includes the business’ management and employees, as well as all five of its manufacturing plants: Alvin, Texas (Chocolate Bayou); Decatur, Alabama; Greenwood, South Carolina; Pensacola, Florida; and Foley, Alabama.
“We believe this transaction positions the nylon business to achieve its full potential,” added Quinn. “The business was the core of Solutia for many years and before that was the centerpiece of the former Monsanto’s chemical business for decades. The combination of the highly dedicated men and women of the business along with the experienced SK Capital team marks the beginning of a new chapter for the business.”
The transaction is subject to various closing conditions. Solutia anticipates the sale will close in the second quarter of 2009.
HSBC Securities (USA) Inc. advised Solutia on the transaction.