Momentive to cut debt, enhance liquidity in Chapter 11 bankruptcy case

By Caroline Salls

Pittsburgh, April 15 - Momentive Performance Materials Inc. filed Chapter 11 bankruptcy on Sunday in the U.S. Bankruptcy Court for the Southern District of New York after reaching a restructuring support agreement with some key stakeholders on the terms of a balance sheet restructuring plan that will reduce long-term debt and enhance liquidity, according to a company news release.

The company said the key terms of the support agreement include a $600 million rights offering, which will provide a significant equity infusion, along with the securing of commitments for $1.3 billion of exit financing.

Momentive said the agreement is supported by holders owning about 85% of its second-lien notes.

Restructuring terms

Under the restructuring plan:

• General unsecured creditors and holders of claims arising from the company's cash flow facility, first-lien notes and 1.5 lien notes will be paid in full;

• Second-lien notes will be converted into new equity of the reorganized company, subject to dilution by a management incentive plan and the equity to be issued under the rights offering;

• Holders of second-lien notes will receive subscription rights for the rights offering, giving them the opportunity to purchase a percentage of the new equity at a price per share determined by using the capital structure and an enterprise value of $2.2 billion and applying a 15% discount to the equity value;

• Holders of holding company PIK notes will receive available cash;

• Subordinated noteholders will receive nothing; and

• Consenting noteholders have agreed to backstop the rights offering in exchange for a fee, payable in new equity, of an additional 5% of the rights offering amount.

The company said this fee is payable in kind at the closing of the rights offering, or in cash, if Momentive terminates the backstop commitment.

Momentive said it will file its plan and related disclosure statement soon.

Continued operation

The company said all of its silicones and quartz businesses will continue to operate in the ordinary course throughout the Chapter 11 process. Momentive's operations outside the United States are not included in the Chapter 11 proceedings.

In addition, the company said the filing relates solely to Momentive Performance Materials and not to Momentive Specialty Chemicals Inc., which has a fully independent debt capital structure and a separate and strong balance sheet. Momentive Specialty had liquidity of $773 million as of Dec. 31 and has no significant debt maturities before 2018, the release said.

"With the support of certain key stakeholders, we intend to move quickly to implement our pre-negotiated balance sheet restructuring plan, which will eliminate more than $3 billion of debt from MPM's balance sheet and result in post-emergence liquidity of more than $300 million and net debt of approximately $1.2 billion," chairman, president and chief executive officer Craig O. Morrison said in the release.

"This will free up additional cash flow that, among other things, can be invested in growth opportunities, capital expenditures, research and development and technology enhancements."

DIP financing

In conjunction with the filing, Momentive received a commitment for $570 million in debtor-in-possession financing led by J.P. Morgan Securities LLC as lead arranger, consisting of a $300 million term loan and a $270 million ABL revolver that will be convertible to an exit facility at the company's option.

The company said this financing, combined with cash generated by its ongoing operations, will be available to meet its operational and restructuring needs.

The DIP loans will mature on the earlier of 12 months from the bankruptcy filing date and the effective date of a plan of reorganization.

Interest will be Libor plus 275 basis points or Base rate plus 175 bps, at the borrower's option.

The company received interim access to $430 million of the financing, including $130 million of the ABL loans and $300 million of the term loans. The final hearing is scheduled for May 15.

Debt details

According to court documents, Momentive has more than $1 billion in both assets and debt. Specifically, the company listed $4,114,000,000 of consolidated outstanding debt as of Dec. 31.

The company's largest unsecured creditors are:

• The Bank of New York Mellon Trust Co., NA of Pittsburgh, with a $1,160,687,000 9% second-priority springing lien notes claim and a $182.95 million 9½% second-priority springing lien notes claim;

• GE Capital Equity Investments, Inc. of Norwalk, Conn., with an $876.96 million 11% senior discount note claim;

• The Bank of New York Mellon of Pittsburgh, with a $381.87 million 11½% senior subordinated notes claim;

• Odyssey Logistics & Technology Corp. of Danbury, Conn., with a $3.69 million trade debt claim;

• Globe Metalurgical Inc. of Beverley, Ohio, with a $3.64 million trade debt claim;

• Mitsubishi Gas Chemical America Inc. of New York, with a $3.34 million trade debt claim;

• Amerada Hess Inc., based in Syracuse, N.Y., with a $2.5 million trade debt claim;

• Fischback USA Inc. of Elizabethtown, Ky., with a $2.43 million trade debt claim;

• Unimin Corp. of New Canaan, Conn., with a $2.25 million trade debt claim; and

• Auramet Trading LC of Fort Lee, N.J., with a $1.94 million trade debt claim.

Apollo Funds of New York holds 90.4% of Momentive's shares.

Default waivers

According to an 8-K filed with the Securities and Exchange Commission, Momentive obtained waivers from the required lenders under its $270 million asset-based revolving loan facility and the required lenders under its $75 million revolving credit facility in connection with specified events of default.

The company said those defaults stem from PricewaterhouseCoopers LLP expressing its opinion that there is substantial doubt about the company's ability to continue as a going concern for the next 12 months in Momentive's 10-K, the company's failure to furnish financial statements for the fiscal year ended Dec. 31 within 95 days and the bankruptcy filing.

Also, Momentive said the bankruptcy filing constituted an event of default that accelerated its $382 million of 11½% senior subordinated notes due 2016, $1,161,000,000 of 9% second-priority springing lien notes due 2021, $183 million of 9½% second-priority springing lien notes due 2021, $250 million of 10% senior secured notes due 2020 and $1.1 billion of 8 7/8% first-priority senior secured notes due 2020.

However, the company said attempts to enforce these payment obligations are automatically stayed as a result of the bankruptcy filing.

Willkie Farr & Gallagher is serving as legal counsel, Moelis & Co. is serving as financial adviser, and AlixPartners is serving as restructuring adviser.

Momentive is a silicones and advanced materials company based in Albany, N.Y. The Chapter 11 case number is 14-22503.

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