Molycorp Inc. is considering a proposal from senior creditors that would swap at least some of their bonds for equity as the rare-earths producer struggles to manage $1.6 billion of debt, according to two people with knowledge of the matter.
Houlihan Lokey and Kramer Levin Naftalis & Frankel, which are advising holders of Molycorp’s $650 million of 10 percent first-lien secured notes maturing in June 2020, submitted the plan in late April and signed non-disclosure agreements, said the people, who asked not to be named because the matter is private. The proposal includes swapping a portion or all of the notes into equity, the people said.
The plan, which would cut Molycorp’s debt load and interest cost, is based on the creditor group’s expectation that the securities would be impaired in a restructuring while the company’s lower-ranking 3.25 percent convertible notes due in June 2016 would get wiped out, one of the people said. Molycorp has also been negotiating with holders of the $206.5 million in convertible notes, led by Apollo Capital Management LLC, to push out the debt’s maturity date and convert it into equity, said one of the people.
Failure to repay the convertible notes on time would trigger an early repayment of borrowings under a $400 million credit line provided by Oaktree Capital Management LP last August. Molycorp had drawn $250 million on that credit line as of Dec. 31, according to regulatory filings. The debt is currently due in 2019.
The convertible notes last traded at 8.9 cents on the dollar on April 24, down from 76 cents on Sept. 10, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The first-lien bonds last traded at 50.1 cents on April 28, down from 90 cents on Aug. 6 when the company announced the Oaktree credit line.
The first-lien bondholders, the first group of creditors to organize since the company began showing signs of distress, are conducting due diligence on Molycorp’s business, with a focus on how fast its Mountain Pass mining and processing facility in California could ramp up production, the people said.
Jim Sims, a spokesman at Molycorp, and John Gallagher, a spokesman at Houlihan Lokey, declined to comment. Jennifer Manton, a spokeswoman at Kramer Levin, and Charles Zehren, a spokesman for Apollo at Rubenstein Associates Inc., didn’t immediately respond to e-mailed messages and phone calls seeking comment.
The Greenwood Village, Colorado-based Molycorp, the biggest rare-earths producer outside China, has reported 12 straight quarterly losses, according to data compiled by Bloomberg. The company approved a reverse stock split on April 29 to comply with the share listing requirements of the New York Stock Exchange, according to a regulatory filing Monday.
Molycorp said in March it may not be able to continue as a “going concern” if it can’t restructure its debt, and hired Miller Buckfire & Co to evaluate its capital structure.
Molycorp shares closed at 80 cents in New York, down 83 percent in the past 12 months.