Joel R. Glucksman
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Momentive Faces Criticisms As It Heads To Bankruptcy Court
Author: Joel R. Glucksman
Date: August 26, 2014
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Apollo Global Management-owned silicone and quartz producer Momentive Performance Materials recently began a week of bankruptcy hearings to determine whether its plan to shed $3 billion of debt will be approved.
Momentive filed for protection under Chapter 11 of the bankruptcy law in April after failing to turn a profit since its acquisition by Apollo in 2006, according to Bloomberg.
The New York-based company filed for bankruptcy with an agreement to transfer control to one class of bondholders, despite strong opposition from other creditors, Reuters reported. The deal hinges on a $1.3 billion loan from JPMorgan Chase & Co. and a rights offering to holders of second-lien bonds worth $600 million. This would allow the second-lien bondholders to receive Momentive’s equity.
While a large number of the company’s other creditors are strongly opposed to the deal as it stands now, most rest on a few lines of the contract, the news source explained. If Bankruptcy Judge Robert Drain sides with creditors in his interpretation of these lines early on, the rest of the four days set aside for bankruptcy hearings may be obviated.
The main objection comes from Momentive’s junior bondholders, led by U.S. Bank NA, according to Reuters. These creditors would recover nothing under the plan. U.S. Bank is owed approximately $382 million, and says that it cannot be put behind other creditors in the payback line. Momentive is citing contract language that puts the bank’s debt behind other creditors, but U.S. Bank maintains that this clause only applies to senior secured lenders. If Drain sides with U.S. Bank, Momentive will have to start work an a new plan of restructuring.
Some creditors have also noted that Apollo Global Management is getting a so-called “sweetheart” deal in this bankruptcy, as it owns Momentive and holds some of its second-lien debt.
“It’s like doing a deal with your wife,” a source told Reuters. “If the other side wins, you still win.”
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