Momentive's bankruptcy plan earns approval for creditor vote

WATERFORD, N.Y.—Momentive Performance Materials Inc., a maker of silicones and quartz products owned by Leon Black's Apollo Global Management L.L.C., won court approval to put the rough terms of its bankruptcy plan to a creditor vote.

U.S. Bankruptcy Judge Robert Drain approved the disclosure statement explaining the reorganization on June 19.

Momentive had sought to resolve three creditor lawsuits on an accelerated schedule, leading up to a five-day trial that would confirm a plan by Aug. 22. The judge said there was no need to hold up a vote just for the lawsuits, while suggesting that a trial on final plan approval be delayed to Sept. 14.

“It doesn't affect the company's business, it affects a class of creditors, and it is a sophisticated class,” Drain said at a hearing in White Plains, New York.

Talks with the company's official creditors' committee led to a revised plan that was filed on June 18, Matthew Feldman, a lawyer for Momentive, told Drain. The plan before the court today cut $4 billion of debt to as little as $1.3 billion.

Drain declined to approve a creditors' agreement supporting a proposed $600 million rights offering until a $30 million fee is reduced.

The judge also told creditors today to take more time to resolve legal disputes. The company had sought to resolve them all prior to Aug. 14, which Drain said was too soon. He said he will impose a timeline by June 23 if creditors can't agree on one themselves.

Momentive, with a 70-year history dating to its inception as General Electric Co.'s advanced materials business, is girding for a fight over the bankruptcy plan.

Its lowest-priority noteholders are trying to get recoveries at the expense of those above them, and its top-priority noteholders are trying to eat into the recoveries of its middle-tier note holders and Apollo, the private equity company that bought Momentive for $3.8 billion in 2006.

Under Momentive's current plan, negotiated by the company, Apollo and an ad-hoc committee of noteholders that represents second-lien debt, holders of its lowest tier of notes—$381.9 million in 11.5 percent senior subordinated notes due 2016—would get nothing.

Those noteholders sued Momentive, saying their debt should be treated equally to the second-lien noteholders. The lowest-tier noteholders include BlueMountain Credit Alternatives Master Fund L.P., with $79 million, and Aurelius Capital Partners L.P., which owns $55 million along with its affiliates.

Momentive is also locked in a dispute with two other classes of noteholders. It sued holders of its first-lien debt—$1.1 billion in 8.875 percent notes due in 2020—and its “1.5-lien” debt—10 percent notes due in 2020—saying it doesn't owe them special premium payments based on unpaid interest. Under the proposed plan, they will be repaid in full, not including the accrued interest.

Separately, a trustee for first-lien lenders sued second-lien noteholders in New York state court yesterday over an intercreditor agreement made in November 2012.

Waterford-based Momentive listed $2.69 billion in assets and $4.17 billion in debt in its Chapter 11 filing in April. The company hasn't posted an annual profit since Apollo bought it in 2006, according to data compiled by Bloomberg.