WHITE PLAINS, N.Y.—Creditors opposed to Momentive Performance Materials Inc.'s bankruptcy reorganization lost a bid to keep the plan from being implemented while they challenge it.
On Sept. 22, U.S. District Judge Vincent Briccetti denied the creditors' request for a stay and refused to let plan opponents take their case directly to the U.S. Court of Appeals in Manhattan. The opponents notified the district court on Sept. 23 they would appeal both rulings.
This month, Apollo Global Management L.L.C.'s Momentive Performance, a maker of silicone and quartz products, won bankruptcy court approval of a plan that cuts debt to less than $1.3 billion from about $4 billion. The Sept. 22 decision removed an obstacle to the reorganization of the Waterford, N.Y.-based company, which Leon Black's Apollo took over for $3.8 billion in 2006.
U.S. Bankruptcy Judge Robert Drain had said groups of senior creditors that originally opposed the plan weren't allowed to change their votes at the last minute, which would have allowed them to be paid in cash rather than new debt. They and a group of low-ranking creditors, who are to get nothing under the plan, sought to keep it from being carried out while they appealed Drain's decision.
Briccetti refused to put the plan on hold, saying the challengers hadn't shown a likelihood their appeal would succeed. He said Drain was probably correct in his treatment of the senior creditors' claims.
The bankruptcy judge's ruling was based on a “sensible reading” of relevant cases, Briccetti said. Case law also doesn't show a “substantial possibility” that Drain was mistaken in his treatment of the lower-ranking creditors, the district judge said.
“It's more likely that Judge Drain is right than that he is wrong,” Briccetti said. He said there was also no basis for immediate review of Drain's decision by the Manhattan-based U.S. Court of Appeals for the Second Circuit.
The appellants “have offered no evidence in support of their doomsday scenarios,” Briccetti said.
Momentive Performance listed $2.69 billion in assets and $4.17 billion in debt in its April Chapter 11 filing. The company negotiated its bankruptcy plan with Apollo and a committee representing holders of second-lien secured debt. Most of the reorganized company's stock will go to holders of $1.34 billion in 9 percent second-lien notes.
The company offered the senior lenders full repayment in cash but no premium to compensate for early redemption of their notes if they endorsed the plan. As they initially voted against it, they're entitled to new debt to replace the old, but no cash.
Senior subordinated noteholders sought to bar Momentive Performance from paying creditors under the plan while they appealed. The group, which holds $381.9 million in 11.5 percent notes due 2016, argued that their debt should be treated similarly to that of the second-lien noteholders. Instead, under the plan, they get nothing.
The case is In re Momentive Performance Materials Inc., 14- bk-22503, U.S. Bankruptcy Court, Southern District of New York (White Plains).