Molycorp creditor committee asks denial of DIP financing from Oaktree

By Kali Hays

New York, July 17 – Molycorp, Inc.’s official committee of unsecured creditors objected to the company’s proposed $291.76 million of debtor-in-possession financing from Oaktree Capital Management, according to a Friday filing with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, the company received interim access to $22 million of the financing in early July.

Since being appointed on July 8, the committee said that it has “been working around the clock” to understand Molycorp and the proposed financing and has found two particular issues that require “special scrutiny” from the court.

First is that Oaktree provided Molycorp with “a series of multi-million dollar financings” nine months before the company filed for bankruptcy. With the proximity between the filing and these “controversial prepetition transactions” and “the apparent absence of game-changing market events in between” the committee intends to analyze the financings in-depth.

The second concern of the committee is its claim that the proposed DIP facility “threatens to destroy pockets of value that currently appear to be available to fund significant unsecured creditor recoveries,” according to the objection.

Specifically, the committee said that some Molycorp debtors that have no obligation to Oaktree as borrowers or guarantors are now subject to superpriority claims and liens under a revised DIP agreement.

“In short, the Oaktree DIP financing appears designed to ensure that all of the value of the neo entities flows to Oaktree by snaring assets of certain debtors that do not benefit from the financing,” the objection stated.

Without a revised DIP agreement addressing the committee’s “myriad concerns,” the committee asked that the court deny the proposed financing.

A hearing on final approval of the DIP loan is set for July 20.

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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