Momentive indenture trustee eyes ruling on subordination of 11½% notes

By Caroline Salls

Pittsburgh, June 2 - Momentive Performance Materials, Inc. 11½% senior subordinated notes indenture trustee U.S. Bank NA filed a complaint on Friday "to prevent the misapplication of contractual subordination in a manner plainly inconsistent with the governing documents," according to a filing with the U.S. Bankruptcy Court for the Southern District of New York.

Specifically, the trustee said its suit seeks a declaration that the senior subordinated notes are not subordinated in right of payment to the company's 9% second-priority springing lien notes due 2021 and the euro-denominated 9½% second-priority springing lien notes due 2021 issued nearly four years after the subordinated notes.

According to the complaint, the holders of the senior subordinated notes agreed to be contractually subordinated in right of payment only to senior debt, and the second-priority notes do not constitute senior debt.

U.S. Bank said the indenture is clear that a debt is not considered senior if it is in any way subordinate or junior to any other debt.

Because the second-priority notes provide that the liens granted to them by Momentive and the guarantors and their entitlement to satisfaction from and other rights to collateral are junior and subordinated to those of the first-priority secured debt, the trustee said the second-priority notes are not senior debt are not entitled to benefit from the contractual subordination provisions in the indenture.

The trustee said Momentive filed bankruptcy with $382 million of the original $500 million of senior subordinated notes outstanding.

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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