Momentive’s Senior Lenders Sue Juniors Over Payment Plans

Senior lenders to Momentive Performance Materials Inc., a bankrupt maker of silicones and quartz products owned by Leon Black’s Apollo Global Management LLC, filed a lawsuit in New York state court accusing junior lenders of violating an intercreditor agreement.

Wilmington Trust NA, as trustee for 10 percent notes due in 2020, sued J.P. Morgan Chase Bank, GSO Capital Partners LP and other holders of second-lien notes yesterday in Manhattan, saying they interfered with its rights as a more senior lender.

An agreement signed in November 2012 established the position of the senior lenders relative to the juniors so that if there “appeared to be a risk of non-payment, there would be ground rules in place to handle the situation,” Wilmington said in the complaint.

Junior lenders violated the agreement by trying to take collateral in the form of new common stock, or alternately, a $30 million payment, according to the filing. They’ve also supported a reorganization plan for Momentive that won’t repay the senior lenders’ notes in full, and have tried to have their professional fees paid before the senior lenders’ claims are all satisfied, according to the complaint.

70 Years

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. The company has already won court approval to submit the terms to a creditor vote despite several lawsuits among creditor groups pending in U.S. Bankruptcy Court in White Plains, New York.

The company’s lowest-priority noteholders are trying to get recoveries at the expense of those above them in the capital structure. Top-priority noteholders are trying to eat into the recoveries of middle-tier noteholders and Apollo, the private-equity firm that bought Momentive for $3.8 billion in 2006. Under Momentive’s current plan, holders of its lowest tier of notes -- $381.9 million of 11.5 percent senior subordinated notes due in 2016 -- would get nothing. Those noteholders sued Momentive, saying their debt should be treated equally to the second-lien noteholders.

Momentive is also in dispute with first-lien lenders, 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.

Momentive, based in Waterford, New York, 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.

The case is In re Momentive Performance Materials Inc., 14-bk-22503, U.S. Bankruptcy Court, Southern District of New York (White Plains).

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