Momentive Creditors Face Reckoning on Bankruptcy Plan

Momentive Performance Materials Inc., the maker of silicone and quartz products owned by Leon Black’s Apollo Global Management LLC, will probably find out today whether it can withhold some payments from senior lenders to benefit creditors with lower priority.

U.S. Bankruptcy Judge Robert Drain in White Plains, New York, said he would announce decisions today on whether to confirm the plan and on what terms, after four days of sometimes contentious hearings last week.

The Waterford, New York-based company filed for bankruptcy protection in April after struggling to meet payments on debt dating to its $3.8 billion buyout by Apollo. The proposed plan would cut debt to as little as $1.3 billion from more than $4 billion.

Top-priority noteholders have been fighting for a special payment that they say they’re entitled to because Momentive is seeking to redeem their debt early. Such make-whole premiums are to compensate for future unpaid interest.

Because the bankruptcy accelerated the maturity date of the debt, which is different from the company’s voluntarily choosing to redeem the notes, Momentive says it’s not liable for the make-whole. The lenders say it is due to them because Momentive paid the debt before it was due. Under the proposed plan, the lenders will be repaid in full, but without the interest through the original 2015 maturity.

A decision by Drain to award the make-whole premium would reduce the recoveries of lower-tier creditors.

The judge must also decide a dispute that revolves around the lowest-priority noteholders’ trying to get recoveries at the expense of those above them. Momentive and those creditors disagree on the interpretation of certain language contained in a provision of their agreement.

Get Nothing

The proposed plan was negotiated by Momentive, Apollo and a committee that represents second-lien debt holders, who hold secured debt. Under the proposal, most of the reorganized company’s stock would go to holders of $1.34 billion in 9 percent second-lien notes. Those on the lowest tier, with $381.9 million in 11.5 percent senior subordinated notes due 2016, which are unsecured, would get nothing.

Those noteholders sued Momentive, saying their debt should be treated equally to the class above them. 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.

The creditor infighting drove Drain to stop the fourth day of last week’s hearing for more than two hours to give the parties a chance to reach an accord.

Momentive 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).

With assistance from Laura J. Keller in New York.

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