Momentive appeal ruling sends interest issue back to bankruptcy court

By Caroline Salls

Pittsburgh, Oct. 23 – Momentive Performance Materials Inc. indenture trustees prevailed on one issue of an appeal of the U.S. District Court for the Southern District of New York’s affirmation of an order confirming the company’s plan of reorganization, according to an opinion entered Oct. 20 by the U.S. Court of Appeals for the Second Circuit.

As previously reported, Momentive’s plan was confirmed in September 2014 by the U.S. Bankruptcy Court for the Southern District of New York. The plan took effect on Oct. 24, 2014.

The confirmation order was appealed by first-lien and 1½-lien note trustees, U.S. Bank NA and Wilmington Trust NA

The circuit court said the creditors argued that the plan improperly eliminated or reduced the value of notes they held, while Momentive claimed that the plan was properly confirmed and that these appeals should be dismissed as equitably moot.

“With one exception, we conclude that the plan confirmed by the bankruptcy court and affirmed by the district court comports with the provisions of Chapter 11,” the circuit court said in Friday’s opinion.

“We remand so that the bankruptcy court can address the single deficiency we identify with the proceedings ... which is the process for determining the proper interest rate under the cramdown provision of Chapter 11.

“We decline to dismiss these appeals as equitably moot.”

Specifically, the circuit court said in response to the issues raised on appeal that Momentive’s second-lien notes have priority over its subordinated notes and that the second-lien noteholders are not entitled to payment of a make-whole premium.

However, the circuit court said the “lower court erred in the process it used to calculate the interest rate applicable to the replacement notes received by the senior-lien notes holders.”

The outstanding issue was sent back to the bankruptcy court for it to assess whether an efficient market rate can be determined and, if so, apply it to the replacement notes.

Momentive is a silicones and advanced materials company based in Albany, N.Y.

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