In an about-face, Molycorp Inc. has chosen bankruptcy financing
from top-ranking lender Oaktree Capital Group LLC over a competing
offer from secured bondholders, setting off a new round of court
fights.
Oaktree's proposed loan is linked to the proposed sale of
Molycorp's most valuable business, the moneymaking Neo Material
Technologies Inc. operations. Bondholders say Molycorp needs to
hang onto Neo to remain viable over the long haul.
Rare-earths producer Molycorp filed for chapter 11 bankruptcy
protection last week, after diving prices for its products made its
$1.7 billion debt load unsupportable. A rare-earths production
facility in California is losing money, but Neo, which processes
the elements for use in high-tech products, is still making
money.
Bondholders say the Oaktree financing will end Molycorp's hopes
of surviving as a unified company, and lead to a sale designed to
hand Neo over to Oaktree.
Terms of the Oaktree financing require Molycorp to mothball its
money-losing California rare-earths facility, and sell Neo, with
Oaktree leading the bidding at an auction in October.
The company and its dueling lenders are due in court this
morning for a hearing on the proposed Oaktree loan, which could run
as high as $292 million.
Molycorp's bankruptcy filing was part of a deal with senior
bondholders linked to a $225 million chapter 11 loan, that set the
stage for them to take control of the company.
Oaktree mounted a successful objection to the bondholder
financing, triggering a new round of talks about who would provide
the money necessary to get Molycorp through bankruptcy.
A new financing deal with Oaktree emerged from the talks, one
that means $126 million in fresh cash for Molycorp, and
unchallenged primacy for the rest of the company's debt to
Oaktree.
A so-called "roll-up," the proposed bankruptcy financing
reinstates Oaktree's existing loans as chapter 11 debts, shielding
them from creditor challenges.
The financing also includes as an acknowledged debt a $50
million early payment premium on the loan.
Oaktree would be entitled to "credit-bid" its loans at the
auction for Neo, meaning bid by offering to cancel debt, instead of
with new money, under the terms of the new proposed loan.
Molycorp owes senior bondholders $650 million. Oaktree is owed
about $260 million in loan and lease deals with Molycorp, not
including the early payment penalty.
The bankruptcy financing is up for interim approval Thursday in
the U.S. Bankruptcy Court in Wilmington, Del.
No final decision on a bankruptcy loan will be made until an
official committee is appointed to represent Molycorp's unsecured
creditors, including junior bondholders owed about $750
million.
Write to Peg Brickley at peg.brickley@wsj.com
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