CORRECTED-Momentive to face critics as bankruptcy-exit plan goes before court

Tue Aug 19, 2014 12:04pm EDT

(Corrects paragraph 5 to say U.S. Bank is trustee for junior bondholders)

By Nick Brown

NEW YORK Aug 18 (Reuters) - Momentive Performance Materials, the quartz and silicone maker owned by Apollo Global Management, will embark Monday on a week of hotly contested hearings seeking court approval of a plan to cut $3 billion in debt and exit bankruptcy.

The Waterford, New York-based company filed for Chapter 11 bankruptcy in April with an agreement to transfer control to a class of bondholders, but most other creditors have vigorously opposed the plan.

Bankruptcy Judge Robert Drain has set aside four days this week - Monday, Tuesday, Thursday and Friday - to hash out the disputes in his White Plains, New York, courtroom and decide whether to approve the plan. The deal is premised on a $1.3 billion loan from JPMorgan Chase & Co and a $600 million rights offering available to holders of second-lien bonds, who would walk away with Momentive's equity.

The fight may not be as messy as it looks on paper. Creditors' grievances, while ardent, are narrow in scope, turning on Drain's interpretation of a few lines of contract language.

The key objection comes from junior bondholders, led by U.S. Bank NA as trustee, who would recover nothing under the plan. Owed some $382 million, the group cannot be treated worse than the bondholders participating in the rights offering, U.S. Bank says.

Momentive has cited contract language pushing the U.S. Bank group's debt behind other creditors', but the bank claims the clause applies only to senior secured lenders, and that no other creditor group can stand ahead of it in the payback line.

Parties have acknowledged a win for U.S. Bank on that issue would upend the restructuring and send Momentive back the drawing board. The matter kicks off Monday's hearing, and if Drain sides with U.S. Bank early on, he could obviate the rest of the week's schedule.

The other major objection comes from senior secured lenders owed more than $1 billion, led by Bank of Oklahoma and Wilmington Trust. Although they would receive full repayment under the plan, they object to missing out on extra premiums known as make-whole payments they say are owed for early redemption of their bonds.

The plan includes language that toggles the lenders' payout based on the outcome of the make-whole fight, so unlike the U.S. Bank dispute, the plan would remain in tact if Momentive loses.

The case has been tense since the outset, with some creditors hinting in court papers that Apollo, which both owns Momentive and holds some of its second-lien debt, is getting a sweetheart deal that lets it hold onto some equity.

"It's like doing a deal with your wife," one person close to the case told Reuters. "If the other side wins, you still win."

Momentive in court papers called the deal "the culmination of arm's-length negotiations." (Reporting by Nick Brown; Editing by Ken Wills)

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