Junior and senior creditors have reached a deal that will speed the end of the bankruptcy of Molycorp, and give senior lender Oaktree Capital Management most of the value in the embattled rare-earths company.

The deal averts prolonged litigation between junior creditors and Oaktree over loans to Molycorp, which was driven to file for chapter 11 protection in June 2015, after prices for its products plunged.

Rare earths are used in small quantities in consumer electronics, and the world's largest producer China opened up trade restrictions that had kept prices high. Molycorp, which had taken on debt to build up its rare-earths processing business and a U.S. mining operation, suffered, and turned to Oaktree for aid.

Molycorp's chapter 11 proceeding has been marked by accusations that Oaktree, a latecomer to the capital structure of the distressed business, had taken too strong a hand in steering the bankruptcy process.

Settlement papers filed in the U.S. Bankruptcy Court in Wilmington, Del., provide for an end to the quarrels, and either a stand-alone reorganization, or a sale of the entire company. In either case, sale or reorganization, Oaktree stands to walk away with 92.5% of the value, up to $513.8 million. The rest of the value, either in the form of equity or sale proceeds, will go to Molycorp's junior creditors, settlement papers say.

The settlement also calls for the abandonment of claims against the company's officer and directors, in exchange for a $3 million payment from insurance.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

February 23, 2016 08:55 ET (13:55 GMT)