Molycorp, Oaktree financing deal calls for sale and facility idling

By Caroline Salls

Pittsburgh, July 1 – Molycorp, Inc. requested court approval to obtain up to $291.76 million in debtor-in-possession financing from Oaktree Capital Management LP, according to a Wednesday filing with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, Molycorp originally sought court approval of a DIP facility to be provided and backstopped by more than 74% of the holders of its 10% senior secured notes.

Under that facility, Molycorp would have been the borrower of up to $44.44 million in initial emergency financing from holders of the 10% notes that was to be used to continue the day-to-day operations of the company’s businesses, make critical upgrades to infrastructure and fund Molycorp’s Chapter 11 cases.

The company said the interim 10% noteholders-provided facility was to be secured by superpriority claims against, and liens on the assets of, all of the Molycorp debtors, including debtors who were guarantors of, or had some or all of their equity pledged in connection with, a series of secured financing transactions in 2014 between the debtors and affiliates of and funds managed by Oaktree.

Molycorp said the claims and liens granted in connection with the 10% DIP facility were to be subordinate to Oaktree’s liens pending entry of a final financing order.

Objection sustained

According to Wednesday’s motion, Oaktree filed an objection to the interim approval of the 10% DIP facility, arguing that some of the debtors and their non-debtor subsidiaries (known as the “neo” entities) did not require any immediate financing for their day-to-day business operations.

Oaktree also argued that any superpriority claims or liens against those debtors caused harm to Oaktree by making it more difficult for the neo entities to confirm a Chapter 11 plan.

At a June 26 hearing, the court sustained, in part, the Oaktree objection and said there wasn’t sufficient evidence to justify the new entities’ borrowing under the DIP facility or sufficient evidence to justify any DIP liens on the neo side.

Molycorp said the supporting 10% noteholders indicated immediately after the June 26 hearing that they were unwilling to provide additional financing without the superpriority claims and liens on the neo entities.

The company said Oaktree provided it with a definitive proposal for post-bankruptcy financing after the June 26 ruling.

‘Only current alternative’

Ultimately, despite intensive efforts and negotiations over the last few days, Molycorp said the only financing consistent with the June 26 ruling currently available is the Oaktree DIP facility, and “the only current alternative to the Oaktree DIP facility is the immediate closure of the Mountain Pass facility and the cessation or significant impairment of the debtors’ various business operations.”

Molycorp said the Oaktree DIP facility will give it the necessary financing to fund a sale process and preserve some of the value of the Mountain Pass facility by idling operations and implementing a care and maintenance program.

While idling the Mountain Pass facility will result in the loss of about 400 jobs in the near term, Molycorp said the idling of the facility by no later than Oct. 5 is a condition of the Oaktree DIP facility, and there is no current alternative that would permit continued operations at the facility.

“The Oaktree DIP facility, the idling of the Mountain Pass facility and pursuit of a sales process is now the only alternative to the immediate forced closure of the Mountain Pass facility and the immediate loss of key personnel to the debtors’ various operations around the world,” the motion said.

“While the terms of the Oaktree DIP facility are in some respects less favorable than the 10% DIP facility and will give Oaktree substantial control over these Chapter 11 cases and the debtors’ future, it is the only source of financing now available to prevent immediate and irreparable harm to the debtors’ estates.”

Oaktree facility terms

The Oaktree facility consists of a $126.37 million fully committed and funded multi-draw term loan, which includes a 7% original issue discount. Of this amount, $21.98 million, including the original issue discount, will be available on an interim basis.

The facility also includes an additional $104.4 million available upon entry of the final order, including the 7% original issue discount, and a roll up of all outstanding obligations arising under or in connection with the Oaktree secured financings.

Molycorp said the obligations include outstanding principal and accrued interest and early premium payments in the amount of $50.11 million.

The facility carries a 7% interest rate to be paid in cash and a 7% interest rate to be paid in kind.

The Oaktree facility will mature on the earliest of the asset sale effective date, the date all loans are due and payable and a Dec. 31 outside date.

Original facility comparison

The facility to be provided by the 10% noteholders would have been for $225 million in financing, with a 10% original issue discount in the form of $4.5 million in additional funding consideration.

Interest would have been 7% paid in cash and 8% paid in kind.

The financing would have matured on the earliest of the effective date of a plan acceptable to the lenders, the date all loans become due and payable in full and Nov. 30 provided that, if the company used its best efforts to have the plan take effect by Nov. 30, the maturity date could be extended to Dec. 30.

A hearing is scheduled for July 2.

Molycorp is a Greenwood Village, Colo., producer of materials from rare earth minerals that filed for bankruptcy on June 25. The Chapter 11 case number is 15-11357.

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