Aug 26 A judge on Tuesday approved the bulk of Momentive Performance Materials' bankruptcy exit plan, rejecting creditor objections and pushing the quartz and silicone maker a step closer to cutting its debt by $3 billion.
In a four-hour-long ruling read in a White Plains, New York, courtroom, bankruptcy Judge Robert Drain stopped short of confirming the plan outright, rejecting the interest rate being offered to one creditor class.
A lawyer for Momentive said the company plans to present a revised version to Drain next month.
The ruling was an overall win for Momentive, which prevailed in creditor disputes that threatened to derail the plan.
Momentive, owned by Apollo Global Management, has been in Chapter 11 bankruptcy since April, with a contentious proposal to transfer control to a class of bondholders that also includes Apollo.
The bondholders would participate in a $600 million rights offering, while JPMorgan Chase & Co would supply a $1.3 billion loan.
The case was tense from the outset, with some creditors hinting in court papers that Apollo was getting a sweetheart deal that lets it hold onto equity despite the company's bankruptcy. Momentive in court papers called the deal "the culmination of arm's-length negotiations."
In an important piece of his ruling, Drain found it was fair for Momentive to wipe out a group of junior bondholders, led by U.S. Bank as trustee, who claimed they deserved recovery equal to the second-lien bondholders funding the rights offering. A win for U.S. Bank would have upended the plan and sent Momentive back to the drawing board.
The fight turned on the definition of senior debt. The U.S. Bank group's $382 million in debt is contractually junior to Momentive's "senior" debt, but equal to its non-senior debt.
The question was whether the second-lien bondholders could be considered "senior." Their debt is paid before or concurrently with all of Momentive's other debt, but their lien is junior to some other liens.
Siding with Momentive, Drain said liens merely secure debt, but "are not themselves debt." Thus, the second-liens are "senior" despite their junior lien, and their more desirable treatment under the plan is not unfair, he concluded.
Drain also nixed an objection from certain secured creditors who claimed they were entitled to extra premiums known as "make-whole" payments for the early redemption of their debt.
Those creditors, owed roughly $1 billion, are led by trustees Bank of Oklahoma and Wilmington Trust. Under a toggle provision, the plan would pay them in cash if they agreed to forgo the make-whole, and in the form of new notes if they objected.
The banks have asked permission to change their votes to accept the plan, ostensibly in hopes of receiving cash payouts. That request, which is opposed by Momentive, will be heard by Drain at a later date. (Editing by Grant McCool)