By Nick Brown
NEW YORK Fri May 23, 2014 1:03pm EDT
NEW YORK May 23 (Reuters) - A bankruptcy court judge on Friday approved a $570 million financing package to get Momentive Performance Materials through bankruptcy, over the objections of unsecured creditors who say the deal will threaten their recoveries.
Momentive, the maker of silicone and quartz products that is owned by private equity group Apollo Global Management LLC , filed for Chapter 11 protection in April with a prearranged restructuring that had the support of key stakeholders. The plan, which still needs court approval, includes a $600 million rights offering and $1.3 billion in exit loans from JPMorgan Chase & Co.
To get Momentive through Chapter 11, JPMorgan also arranged financing in the form of a $300 million loan and a $270 million credit facility.
The bulk of that package had already been approved by Judge Robert Drain of U.S. Bankruptcy Court in White Plains, New York, but unsecured creditors, including Aurelius Capital Management, objected this month to the approval of the rest.
The fight is less about the financing than being a precursor to a potentially contentious battle in the coming months over Momentive's restructuring.
Rather than taking issue with the size or necessity of the loan, the unsecured creditors objected to provisions of the deal they see as limiting their ability to challenge Momentive's bankruptcy exit plan.
The provisions are inappropriate in light of the high likelihood of a legal fight over the plan, specifically as to whether Aurelius and other subordinated debtholders are entitled to recovery, Kenneth Klee, a lawyer for the unsecured creditors, told the judge on Friday.
Klee's group balked at provisions that would pick up some of Apollo's professional fees and set a 90-day limit for the unsecured creditors to launch challenges to certain protections for Momentive's secured creditors.
Drain rejected the challenge on fees, but granted that the unsecured creditors should have the right to request his permission to extend the 90-day window if necessary.
According to David Stern, another lawyer for the unsecured creditors, Apollo's financial advisory firm, Moelis & Co, will make $150,000 a month in the case, plus a $1.5 million bonus if the restructuring is approved. Moelis Managing Director Bill Derrough, who testified on Friday, said he was not sure if the numbers were accurate.
Aurelius, an investment fund specializing in bankruptcy law, buys heavily distressed debt and sometimes litigates through bankruptcy to boost recoveries. (Editing by Jeffrey Benkoe)
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