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Momentive Performance Materials files for Chapter 11 (updated)

3:41 AM MDT | April 14, 2014 | Francinia Protti-Alvarez and Robert Westervelt

Silicones and quartz maker Momentive Performance Materials (MPM; Albany), controlled by private-equity firm Apollo Management, has filed for Chapter 11 bankruptcy protection in an attempt to implement a "pre-negotiated" restructuring plan to reduce debt by $3 billion. MPM reported net debt of $4.1 billion and total assets of $2.7 billion as of 31 December 2013. Apollo owns a 90.4% equity stake in MPM.

MPM says it is the second-largest producer of silicones, with a 14% global market share, after Dow Corning, which has 32% of the market.  All of MPM’s silicones and quartz businesses will continue to operate normally during this period, the company adds.

MPM says a proposed “restructuring support agreement” (RSA) has been reached with holders owning approximately 85% of the company’s second-lien notes. Certain second-lien creditors have agreed to swap MPM debt for equity. Apollo “owns a significant portion of second-lien notes,” according to documents filed as part of the bankruptcy. MPM had outstanding second-lien debt valued at $1.3 billion as of 31 December.

The RSA proposes that holders of more senior first-lien debt, which totals $1.5 billion, would receive cash payments to redeem their notes when Momentive exits bankruptcy if they support a plan of reorganization, or replacement notes with an equal value if they reject the plan of reorganization. Bank of New York Mellon, trustee for the first-lien notes, says the agreement does not adequately protect its interests as first-lien trustee or that of first-lien noteholders. “The debtors have cut a deal with their insiders and one tranche of debt while steadfastly ignoring other constituencies, and declared victory,” Bank of New York Mellon said in a court filing. Momentive and “their insiders are seeking to effectuate an optional prepayment or redemption of the first-lien notes, notwithstanding the call protection and make whole provision in those notes and to disadvantage the first lien trustee,” Bank of New York Mellon says.

The terms of the RSA include a $600-million equity rights offering together with commitments of $1.3 billion for exit financing that will reduce debt by $3 billion, MPM says.

MPM says in bankruptcy filings that it has burned through $437 million in cash since 2011 as high debt levels and worsening conditions in silicones markets have drained liquidity. “Since 2011, the company has experienced significant deterioration in its financial performance, primarily attributable to a fundamental shift in industry dynamics, including industry-wide overcapacity, causing severe price pressure for the company’s basic products, and the commoditization of lower-end specialty products, which have collectively given rise to decreased profit margins industry-wide,” Momentive’s executive v.p. and CFO William Carter said in bankruptcy-related declaration filing. “While the company’s competitors have also been affected by the changing industry, the company’s high net leverage has led to increasingly diminished liquidity for the company, and the inability to properly fund operations.”

MPM posted a net loss of approximately $464 million for 2013, compared with the net loss of $365 million reported in 2012. Net sales were $2.4 billion for 2013, up 1.7% from 2012. Silicones account for roughly 90% of sales. 
“With the support of certain of our 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,” says Craig Morrison, chairman and CEO of MPM. 

MPM says it has received a commitment for $570 million in debtor-in-possession financing, led by J.P. Morgan as lead arranger and consisting of a $300-million term loan and a $270-million, asset-based-lending (ABL) revolving credit facility. The ABL will be convertible to an exit facility at MPM’s option upon meeting certain conditions. Following court approval, this financing, combined with cash generated by MPM’s ongoing operations, will be available to the company to meet its operational and restructuring needs. “These financings will provide us with financial flexibility throughout the reorganization process to operate reliably with significant liquidity of more than $300 million as well as visibility on MPM’s balance sheet and liquidity postemergence,” Morrison says.

The filing relates only to MPM and not to Momentive Specialty Chemicals (MSC; Columbus, OH), which has a separate capital structure, the company says. MSC had liquidity of $773 million as of 31 December 2013 and has no material debt maturities prior to 2018, the company adds. Private equity firm Apollo Management controls MPM and Momentive Specialty Chemicals. Apollo acquired MPM, the former GE Silicones, from GE for $3.8 billion in 2006.

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