Debt Obligations

6 Months Ended

Jun. 30, 2011

9. Debt Obligations

At December 31, 2010, our senior secured credit facility ("Credit Facility") consisted of an $850 term loan maturing in March 2017 ("2017 Term Loan") and a $300 revolving credit facility maturing in 2015 ("2015 Revolver"). In the first quarter of 2011, we amended the 2017 Term Loan. The effect of the amendment resulted in the term of the debt being extended to August 2017, a reduction in the interest rate of 100 basis points, greater strategic flexibility and the replacement of previous financial covenants with a single senior secured leverage ratio. In connection with the amendment, we incurred $2 of fees which were recorded in loss on debt extinguishment or modification in the six months ended June 30, 2011. In addition, in the six months ended June 30, 2011, we made $102 of principal payments on our 2017 Term Loan, of which $98 were voluntary.

In the first quarter of 2010, we issued $300 of senior unsecured notes, due 2020 ("2020 Notes"), which resulted in net proceeds of $292 after deducting underwriting fees and discounts. In addition, we extinguished our previous term loan and revolving credit facility, replacing them with our Credit Facility. As a result of the early extinguishment, we incurred an $80 non-cash charge related to the write-off of deferred debt issuance costs and a $9 prepayment penalty for the early extinguishment. These amounts were recorded in loss on debt extinguishment or modification for the six months ended June 30, 2010.

We had no short-term borrowings at June 30, 2011 and December 31, 2010. Components of long-term debt are as follows:


	June 30, 2011			December 31, 2010
2017 Term Loan	$	666		$	768
8.75% Notes due 2017		400			400
7.875% Notes due 2020		300			300
Total principal amount		1,366			1,468
Less: Unamortized debt discount		(4	)		(5	)
Total	$	1,362		$	1,463

The weighted average interest rate on our total debt outstanding was 6 percent and 6.4 percent at June 30, 2011 and December 31, 2010, respectively.

The $400 notes due in 2017 ("2017 Notes") were issued at par bearing interest at 8.75 percent and require semi-annual interest payments. The 2020 Notes were issued at 99.5 percent of par bearing interest at 7.875 percent and require semi-annual interest payments. Our current subsidiaries CPFilms Inc., Flexsys America L.P., Flexsys America Co., Monchem International, Inc., Solutia Overseas, Inc., S E Investment LLC and future subsidiaries as defined by the 2017 Notes and 2020 Notes (collectively "the Notes"), subject to certain exceptions, are guarantors ("Note Guarantors") of the Notes as of June 30, 2011.

The 2017 Term loan was originally issued for $850 at 99.5 percent of the principal amount. After the amendment, the principal amount was $700 and bears interest at one month LIBOR plus 2.75 percent with a 0.75 percent LIBOR floor. We are required to pay 1 percent of principal annually via quarterly payments. The 2015 Revolver bears interest, at our option, at LIBOR plus 3.25 percent, with no LIBOR floor, or at the prime rate plus 2.25 percent. LIBOR-based interest for the 2017 Term Loan is payable each month while interest on the 2015 Revolver is payable on the last day of each relevant interest period (defined as one month for the 2015 Revolver or one month, two, three or six months or other periods available to all lenders under the 2015 Revolver) and, in the case of any interest period longer than three months, on each successive date three months after the first day of such interest period. Prime-based interest for the 2015 Revolver is payable quarterly in arrears. CPFilms Inc., Flexsys America L.P., Flexsys America Co., Monchem International, Inc., Solutia Overseas, Inc. and future subsidiaries, as defined by the Credit Facility, subject to certain exceptions (the "Credit Facility Guarantors"), are guarantors of our obligations under the Credit Facility. The Credit Facility and the related guarantees are secured by liens on substantially all of our and the Credit Facility Guarantors' present and future assets.

The Credit Facility and The Notes include a number of customary covenants and events of default that restrict our ability to, among other things, incur additional debt; make certain investments; pay dividends; repurchase stock; sell certain assets or merge with or into other companies; enter into new lines of business and prepay, redeem or exchange our debt. The Credit Facility also includes the maintenance of a maximum senior secured indebtedness financial covenant as defined by the Credit Facility. We were in compliance with all applicable covenants as of June 30, 2011.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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