Momentive committee: DIP financing provisions hurt unsecured creditors

By Caroline Salls

Pittsburgh, May 15 - Momentive Performance Materials Inc.'s official committee of unsecured creditors objected to the company's proposed debtor-in-possession financing, according to a May 15 filing with the U.S. Bankruptcy Court for the Southern District of New York.

The committee said more than two weeks of negotiations with counsel for the Momentive debtors, the DIP loan agents and some pre-bankruptcy secured parties "have not provided a satisfactory resolution of many of the flaws in the final order."

According to the objection, Momentive and its insiders decided to use the DIP financing motion to advance other agendas.

Specifically, the committee said the final order "is laden with provisions that would provide significant legal and economic advantages for the debtors' prepetition equity sponsor, Apollo, and for the prepetition secured lenders, particularly holders of second-lien notes, of which Apollo is a significant holder."

The committee said Apollo Global Management, LLC is also the company's controlling equityholder. "In short, Apollo is all over the debtors' capital structure," the committee said.

The creditors said Apollo also is a party to Momentive's restructuring support agreement, which "bears the earmarks of a new value plan, proposing to extinguish Apollo's existing equity and confer on Apollo the exclusive right, along with other second-lien noteholders, to participate in the receipt and purchase of new equity in the debtors on favorable terms."

"Such a plan structure and approach raises concerns about the debtors' ability to confirm such a plan without a market test, about whether there is improper disparate treatment of uncertain unsecured creditors and about the conduct of the debtors in binding themselves to pursue such a plan," the objection said.

The committee said it is evaluating both the support agreement and the recently filed plan of reorganization and needs to conduct its due diligence.

"These provisions of the final order would begin to stack the deck against unsecured creditors from the onset of the Chapter 11 cases and cannot be justified under the guise of adequate protection or otherwise," the creditor group said.

The committee said the provisions in the proposed final order "will leave unsecured creditors in a worse position if the plan the RSA parties have engineered fails."

A hearing is scheduled for May 23.

Momentive, a silicones and advanced materials company based in Albany, N.Y., filed bankruptcy on April 13. The Chapter 11 case number is 14-22503.

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