NEW YORK, March 4 (IFR) - Bonds from Momentive Performance
Materials have slid 65% in a matter of weeks, raising fears of a
debt restructuring and dashing hopes private-equity owner Apollo
will step in to help.
The chemical maker's 11.5% subordinated high-yield 2016
bonds are trading at just 28% of face value, after starting the
year around 70 cents and pushing up to 82 cents in late January.
Two market sources told IFR the slide was triggered by the
appointment of Blackstone as advisors to the subordinated
bondholders, which has many speculating about a restructuring.
"A few months ago, it looked like the consensus view was
that Apollo would offer some kind of exchange on the
subordinated bonds in the mid 70s," said Jon Brager, a
high-yield analyst at Hermes Credit, which did not own the
"The sharp move suggests that investors now believe the
value breaks lower down in the capital structure, and that those
bonds could be taken out more in the 20/30 cents range."
Apollo, Blackstone and Momentive Performance all declined to
Ratings agency S&P last month lowered its ratings on the
bonds one notch to CCC-, saying the prospects of staving off a
default were dim.
It said the company will struggle to comply with the maximum
senior secured leverage covenant of 5.25x in its USD75m cash
flow revolver that matures in December 2014.
Apollo had hoped to cash out five years after buying
Momentive Performance from General Electric in 2006 for
It filed to undertake an USD862m IPO in April 2011, but the
listing never materialized and was withdrawn in August 2012.
Since then, Momentive Performance's earnings have plummeted.
Its last 12 months of earnings before interest, tax,
depreciation and amortization (EBITDA) was USD236m, compared to
USD3.2bn of gross debt, according to Brager.
That puts leverage at a staggering 13.6 multiple to
earnings. S&P puts the adjusted debt-to-EBITDA ratio even higher
at above 15 times.
BAD TO WORSE
Investors may have been hoping that Apollo would support
Momentive Performance's business and provide the cash it badly
needs - particularly after the firm took advantage of the
red-hot capital markets to cash out of other investments.
But while Momentive's second-lien bonds - the 9% USD1.1bn
issue maturing in 2021 - are trading at around 85 cents, the
2016s continue their downward spiral.
"There's a lot of confusion about what will happen to these
bonds," said another high-yield investor, noting the rapid
decline shows the perils investors now face.
"When things go bad at a company, there really is not as
much market-making as there used to be, which at least gave
high-yield investors a chance to get out."
Some investors bet that a stabilization in third-quarter
EBITDA could help it survive longer without a restructuring, but
that no longer seems to be the case.
Hermes Credit's Brager said that, according to the third
quarter results, Apollo owned around 48% of the second-lien
bonds and about a third of the sub 2016s.
"Everyone in the market thought that this was a busted
capital structure, but then market conditions became very hot,"
"However, when several large holders of the subordinated
bonds hired advisors, a lot of forced sellers emerged."