Momentive Plan Ruling Due Monday as Judge Loses Patience

Momentive Performance Materials Inc., a maker of silicone and quartz products owned by Leon Black’s Apollo Global Management LLC, awaits a ruling on its reorganization plan after four often contentious days in court.

U.S. Bankruptcy Judge Robert Drain in White Plains, New York, said he would render his decision on whether to confirm the plan, and on related lawsuits, Aug. 25. The judge didn’t hide his frustration yesterday, at one point stopping the trial to give the parties a chance to hammer out a deal.

“Are there any business people in this case?” he asked one attorney. “Maybe they should get their business-person hat on,” he said. “This is just stupid.”

The Waterford, New York-based company’s lowest-priority noteholders are trying to get recoveries at the expense of those above them, while top-priority noteholders are trying to eat into the recoveries of middle-tier noteholders and Apollo, the private-equity company that bought Momentive for $3.8 billion in 2006.

Under the current plan, negotiated by the company, Apollo and an ad-hoc committee that represents second-lien debt, holders of its lowest tier of notes -- $381.9 million in 11.5 percent senior subordinated notes due 2016 -- would get nothing.

Those noteholders sued Momentive, saying their debt should be treated equally to the second-lien noteholders. The lowest-tier noteholders include BlueMountain Credit Alternatives Master Fund LP, with $79 million, and Aurelius Capital Partners LP, which owns $55 million along with its affiliates.

‘Senior Indebtedness’

The outcome could turn on Drain’s interpretation of the definition of “senior indebtedness” in bond documents. The 11.5 percent notes fell about 20 cents on the dollar this week to a record low of 7 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Momentive is also in a dispute with two other classes of noteholders. It sued holders of its first-lien debt -- $1.1 billion in 8.875 percent notes due in 2020 -- and its “1.5-lien” debt -- 10 percent notes due in 2020 -- saying it doesn’t owe them special premium payments for unpaid interest. Under the proposed plan, they will be repaid in full, not including the interest.

The dispute about the premium provoked criticism from the judge yesterday.

‘Standing Around’

“This is a bunch of lawyers standing around avoiding an obvious solution,” he said. “You know most people when offered payment in cash take it.”

The chemical producer’s first-lien notes slipped 8.2 cents on the dollar from last week to trade at 98.5 yesterday in New York, according to Trace. The notes traded as high as 108.875 cents on the dollar after Momentive filed for bankruptcy in April. The “1.5-lien” notes fell 5.25 cents on the dollar this week to 98.75, Trace data show.

Momentive listed $2.69 billion in assets and $4.17 billion in debt in its Chapter 11 filing. The company hasn’t posted an annual profit since Apollo bought it in 2006, according to data compiled by Bloomberg.

“I really think or I hope at least that the parties have gotten enough out of the last four days that they can assess certainly where they are today, where they might be on any appeal and realize that there’s a pretty obvious way to resolve this,” Drain said at the conclusion of yesterday’s hearing.

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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