NEW YORK—A group of secured debt holders in Momentive Performance Materials Inc. hired Dechert L.L.P. for restructuring advice as the chemical maker's cash dwindles, and Standard & Poor's warns it may seek bankruptcy protection.
Some lenders who hold “a substantial portion” of Momentive Performance's $1.1 billion of 8.875 percent, first-lien notes due in October 2020 retained the law firm, according to a statement from Dechert.
Momentive Performance will run out of money as soon as September if operations don't improve or it doesn't obtain additional financing, according to data compiled by Bloomberg. Its cash fell to $97 million on Sept. 30 from $404.2 million four years earlier. It has a $75 million revolving credit line that matures Dec. 3 that may buy more time.
The company, taken private by Apollo Global Management L.L.C. in 2006 for $3.8 billion, has about $3.3 billion of debt, Bloomberg data shows.
S&P lowered the company's credit rating one grade to CC and put it on watch for a downgrade, according to a statement today from the ratings firm. An obligation rated CC is “highly vulnerable to nonpayment,” according to its ratings definitions. With that grade, S&P “expects default to be a virtual certainty, regardless of the anticipated time to default.”
Whether or not an agreement is reached, Momentive Performance “may file for Chapter 11 bankruptcy protection,” S&P credit analysts Cynthia Werneth and Paul Kurias wrote in the note. “The company has stated that it is in compliance with the terms of its outstanding notes and credit agreements, but it has concluded that there is substantial doubt about its ability to continue as a going concern.”
Momentive Performance “is in active discussions regarding alternatives to modify its capital structure and strengthen its balance sheet in order to create a sustainable business for the long term and resolve any doubts about its ability to continue as a going concern,” a company spokesman said in an e-mailed statement.
More than seven years after Apollo purchased the company from General Electric Co., the buyout firm has hired Lazard Ltd. as a restructuring adviser, a person with knowledge of the matter said in February. Subordinated noteholders and second-lien bondholders have retained counsel, people with knowledge of the move said at the time.
“Leverage remains uncomfortably high,” Evan Mann, a New York-based analyst with bond-research firm Gimme Credit L.L.C., said in a note. “Liquidity could become a pressing issue over the intermediate term, necessitating a capital infusion” or restructuring if earnings don't pick up, he wrote.
Apollo acquired Momentive Performance, which makes silicone and quartz products, when it bought General Electric Co.'s advanced materials unit in 2006. In 2010, the New York-based buyout firm combined Momentive Performance and Momentive Specialty Chemicals Inc., the successor to Hexion, under a company called Momentive Performance Materials Holdings L.L.C., which filed for an initial public offering in 2011.
The chemical maker lost $365 million in 2012, capping six straight years of failing to generate net income, Bloomberg data show. Free cash flow has been negative for nine quarters, falling $80 million for the three months ended Sept. 30, the biggest quarterly cash burn since at least 2008.
David Carey and Charles Mead, Bloomberg News, contributed to this report.