WHITE PLAINS, N.Y.—Apollo Global Management L.L.C.'s Momentive Performance Materials Inc. won conditional court approval of its bankruptcy reorganization plan after days of wrangling with holdout creditors.
The four-hour ruling by U.S. Bankruptcy Judge Robert Drain Aug. 26 in White Plains is a victory for Leon Black's Apollo, which took over the Waterford, N.Y.-based silicone and chemical company for $3.8 billion in 2006. Drain said he was prepared to approve the plan if Momentive Performance boosted the interest being offered on notes in the reorganized company.
Momentive Performance listed $2.69 billion in assets and $4.17 billion in debt in its Chapter 11 filing in April. The bankruptcy plan was negotiated by Momentive Performance, Apollo and a committee that represents holders of second-lien secured debt. Most of the reorganized company's stock would go to holders of $1.34 billion in 9-percent second-lien notes.
“Now that the court has indicated that it will confirm our plan, the path is clear for MPM to emerge from Chapter 11 as a stronger and more competitive company,” CEO Craig Morrison said in a statement. “The restructuring better aligns MPM with current industry dynamics.”
Momentive Performance offered senior lenders full repayment in cash but no premium to compensate for early redemption of their notes if they voted in favor of the plan. If they voted against it, they were entitled to replacement liens, not cash.
This week, those lenders said they were willing to drop their opposition after Drain criticized them for not taking the cash. The judge gave them a day to negotiate with the company. They returned to court Aug. 26 without a settlement.
In his ruling, Drain said the senior lenders had no enforceable claim to “make-whole” premiums, which compensate bondholders for lost interest payments when their securities are retired early and would have amounted to about $200 million in the Momentive Performance case.
One attorney said the ruling could impact the future availability of credit.
“Any time you have decisions that in the view of secured creditors erode the protections that they think they have going in, it could very well impact the availability of secured credit going forward or the cost of secured credit going forward,” said Michael Friedman, a partner at Chapman & Cutler L.L.P.
Still, the judge said he would approve the reorganization only after the company changed the interest rate of the replacement debt going to the senior lenders. The lender groups known as the first-lien and 1.5-lien noteholders deserved additional interest of 0.5 percent and 0.75 percent, respectively, for the risk they are assuming, Drain said.
Momentive Performance expects to complete the modifications soon and emerge from Chapter 11 in the next few weeks, according to the company statement.
“It doesn't happen a lot, because most of the time, the parties get together and agree either on an interest rate on new notes or a cash payment,” Friedman said.
Drain ruled against a group of holders of one of its lowest tiers of notes—$381.9 million in 11.5 percent senior subordinated notes due 2016—who argued that their debt should be treated equally to the second-lien noteholders who funded the $600 million rights offering. Had Drain sided with the group, led by U.S. Bank NA as indenture trustee, the plan would have required additional changes.
—Laura J. Keller in New York also assisted with this report.