Momentive Performance Materials said its estimated going-concern value following emergence from Chapter 11 would be between $2.0-2.45 billion, resulting in a recovery rate for second-lien lenders of 12.8%-28.1%.
Momentive said in an amended disclosure statement filed yesterday that its estimated valuation was based on, among other things, the company meeting its financial projections and emerging from Chapter 11 with pro-forma indebtedness of $1.292 billion.
As reported, under the company’s proposed reorganization plan, second-lien lenders ($1.161 billion of 9% second-priority springing lien notes due 2021 and €133 million 9.5% second-priority springing lien notes due 2021) are to receive all of the equity in the reorganized company, along with participation rights in a $600 million rights offering at a price per share determined by using the pro forma capital structure and an enterprise value of $2.2 billion, applying a 15% discount to the equity value.
The company said the second-lien recovery rate would vary based on the total number of shares of new stock that would ultimately be issued under the plan, which in turn could vary significantly based upon the company’s net debt upon emergence. The company said its net debt would be affected by, among other factors, the amount of cash generated by the company until its emergence, the total amount of allowed claims in the case, and whether the company is required to pay its senior lenders as much as $210 million in make-whole claims – disputes that are the subject of two adversary actions pending in the case.
The disclosure statement explained that the reason the net debt level has such a significant effect upon the second-lien lender recovery rate is that the total number of shares to be issued under the plan is based on a variable formula (total enterprise value, less net debt, divided by $20.33 per share), but the number of shares to be issued under the reorganization plan’s contemplated $600 million rights offering is fixed at about 36.2 million shares, meaning that all of the variance is limited to the second-lien equity recovery (although it would appear that the negative effect would be mitigated, at least in part, for those second-lien lenders that participate in the rights offering).
Beyond the second-lien recovery, the amended disclosure statement also set out the terms of the new debt that the company would issue to fund the plan, consisting of an optional $270 million ABL (a $200 million last-in, first-out Tranche A at L+200 and a $70 million first-in, last out Tranche B at L+275) to replace the existing DIP ABL; $1 billion of new seven-year first-lien notes at L+400; and an incremental facility consisting of either a $250 million second-lien bridge loan or a private placement of senior second-priority secured notes yielding $250 million, priced at L+600, increasing 50 bps in each three-month period beginning on the closing date. If the financing is in the form of a bridge loan, on the first anniversary of the closing date any amount remaining unpaid would be converted into an eight year, senior second-priority term loan that would be further convertible, at the option of the lender and with certain limitations, into second-lien exchange notes.
The proceeds of the financings, together with cash on hand, are to fund distributions under the plan, including DIP claims of $373 million, administrative and fee claims of about $52 million, and cash payments to senior lenders ($1.1 billion of 8.875% first-priority senior notes due 2020 and $250 million of 10% senior secured notes due 2020, the so-called 1.5-lien notes). The proceeds of the incremental facility are to be used, to the extent needed, to repay the 1.5-lien notes.
If senior lenders vote to reject the company’s proposed reorganization plan, however, the new first-lien and incremental debt would not be issued, and the company’s senior lenders would instead receive replacement first-lien and 1.5-lien debt, respectively, with different terms than the debt described above.
Meanwhile, as reported, a hearing on the adequacy of the disclosure statement has been underway today in bankruptcy court in White Plains, N.Y. Also before the court today was whether to approve the company’s proposed restructuring support agreement and rights offering backstop agreement, and whether to approve the company’s proposed timetable for the case that would see a confirmation hearing scheduled for Aug. 14.
The results of the hearing are not yet available on the court docket, but Reuters reported that the bankruptcy court approved the adequacy of the disclosure statement, while expressing concerns about some terms in the RSA and rights offering backstop, particularly a proposed $30 million break-up fee.
The Reuters report did not provide any details with respect to the company’s proposed timetable. Indenture trustees for both the company’s subordinated noteholders and the 1.5-lien notes challenged that timetable as too compressed, and the trustee of the subordinated notes also wanted the bankruptcy court to schedule a “threshold hearing” on whether the notes were subordinate in rank of payment to the second-lien notes. According to the trustee, if the notes are deemed pari passu with the second-lien notes, the company’s proposed plan would not be confirmable, eliminating the need for further action on the plan. – Alan Zimmerman