(Corrects paragraph 5 to say U.S. Bank is trustee for junior
By Nick Brown
NEW YORK Aug 18 A judge said he will rule on
Tuesday whether junior bondholders of Momentive Performance
Materials, a quartz and silicone maker owned by Apollo Global
Management, are being fairly pushed behind other
creditors, a decision that could make or break Momentive's plan
to cut $3 billion in debt and exit bankruptcy.
Judge Robert Drain heard hours of argument from the
bondholders and the company at the first day of a week-long
hearing in U.S. bankruptcy court in White Plains, New York on
Monday. Drain said he will offer his ruling when the sides
return to court on Tuesday morning.
Waterford, New York-based Momentive filed for Chapter 11
bankruptcy in April with an agreement to transfer control to a
class of bondholders, but most other creditor classes have
vigorously opposed the plan.
Drain has set aside four days this week - Monday, Tuesday,
Thursday and Friday - to hear objections the deal, which 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 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. If Drain sides with U.S. Bank on Tuesday, he
could ostensibly 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 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 and Andrew Hay)