Black’s Apollo Said to Add Molycorp Bonds to Gain Edge

Apollo Global Management LLC is adding to its holdings of Molycorp Inc. bonds, positioning Leon Black’s investment firm to control the rare-earths miner in case it seeks to restructure its $1.5 billion of debt, according to two people with knowledge of the matter.

Apollo bought $8.5 million of Molycorp’s $230 million of 3.25 percent convertible notes due 2016 in the three months ended March 31 and added to that amount last quarter, said the people, who asked not to be named because the transactions weren’t public. As of March 31, Apollo held at least 22 percent of that class of securities, according to data compiled by Bloomberg.

The New York-based firm is betting holders of the convertible notes won’t receive a full recovery in a default, putting those lenders in control of a restructuring and in line to take over the company’s equity, the people said.

The miner has lost money for nine consecutive quarters and may run out of cash in about seven months if it doesn’t improve operations. Moody’s Investors Service cut Molycorp’s credit rating last month to Caa2, citing “debt levels that may be unsustainable in a current price environment.”

Molycorp’s 3.25 percent convertible notes traded at 76.3 cents on the dollar June 19 to yield 18.1 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Those securities are down from 80.4 cents on March 25.

Cash Burn

In a default, those bondholders would have leverage in determining a restructuring plan and have the possibility of taking control of a reorganized company because they wouldn’t be receiving a full recovery on their investment, the people said.

Charles Zehren, a spokesman for Apollo at Rubenstein Associates, and Jim Sims, a spokesman for Greenwood Village, Colorado-based Molycorp, declined to comment.

Molycorp, the largest rare-earths producer outside of China, lost $86 million in the three months ended March 31, its ninth consecutive unprofitable quarter, Bloomberg data show. Given its $236.1 million of cash and equivalents, the company is on track to run out of money in about seven months.

Rare earths are 17 chemically similar elements used in applications including batteries, magnets and oil refining. China controls more than 90 percent of global supplies, according to the U.S. Geological Survey.

Standard & Poor’s grades the company CCC+, which means the debt is “vulnerable to nonpayment.”

The miner’s stock fell as much as 17 percent to $1.88, the lowest intraday level on record, before climbing back to $1.90 at 3:03 p.m. in New York.