June 19 A U.S. judge on Thursday gave Momentive Performance Materials the go-ahead to send its restructuring plan to creditors for a vote, but criticized a rights offering at the center of the plan over bloated fees for its backstoppers.
Judge Robert Drain, at a hearing in U.S. Bankruptcy Court in White Plains, N.Y., told the quartz and silicone maker to reduce the $30 million fee to a bondholder group that includes Apollo Global Management for its agreement to guarantee the $600 million rights offering.
Momentive went bankrupt in April with a plan to cut about $3 billion of its $4 billion debt load. The plan would pay off senior bondholders and transfer control of the company to second-lien bondholders, including Apollo, through their sponsorship of the equity rights offering.
Other creditors cried foul at Thursday's hearing, calling the offering a ploy by Apollo to keep control of Momentive, since Apollo holds both current equity and a big chunk of the bonds that would acquire Momentive's post-bankruptcy equity.
Apollo needs no extra incentive to take the deal, so the fee is unnecessary, the creditors argued.
Drain agreed the $30 million figure seemed too high, especially because only a small percentage of the offering figures to be unsubscribed and require backstopping.
Momentive hopes to secure creditor support for its plan and go back to Drain for final approval in August or September, but it faces widespread opposition.
The vehemence over the fee - a drop in the bucket in the scope of Momentive's capital structure - illustrates the contentious nature of a case in which most creditors believe the Apollo group is receiving a sweetheart deal at the expense of recoveries for other stakeholders.
Senior creditors led by Wilmington Trust and Bank of Oklahoma, despite being slated to receive full payback, object to the plan because they would not receive extra premiums known as make-whole payments they feel they are owed for refinancing their bonds.
Meanwhile, lower-priority bondholders led by U.S. Bank would recover nothing despite their insistence that they are contractually equal to the Apollo-led second-lien group.
Lawsuits are pending on both issues, which depending on their outcomes could unravel Momentive's restructuring proposal.
Even within the second-lien bond group, discord rears its head. Fortress Investment Group said it was unfairly excluded from the backstop agreement despite being a large holder of the second-lien debt, and that its calls to the company offering a cheaper backstop agreement for a smaller piece of the rights offering were not returned. (Reporting by Nick Brown; Editing by Chris Reese)