(Corrects paragraph 5 to say U.S. Bank is trustee for junior
By Nick Brown
NEW YORK Aug 18 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
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)