Weathering the Storm: Momentive Performance Court Rejects Market-Based Cramdown Interest Rate, Casts Doubt on Make-Whole Claims


On August 26, 2014, Judge Robert D. Drain of the Bankruptcy Court for the Southern District of New York issued a bench ruling in In re MPM Silicones, LLC, Case No. 14-22503 (RDD), on several aspects of the plan of reorganization filed by debtor Momentive Performance Materials, Inc., a specialty chemicals manufacturing company, and its affiliated debtors. As part of his ruling, Judge Drain held that the debtors were not required to pay senior noteholders a make-whole payment provided for in their notes and that the debtors could satisfy the cramdown provisions of 1129(b) without providing a market rate of interest.


In the Chapter 11 case, the holders of $1 billion of First Lien Notes and $250 million of so-called 1.5 Lien Notes were oversecured and asserted that they were entitled to a “make whole” premium – a type of call provision on a bond allowing the borrower to pay off remaining debt prior to maturity subject to payment of the premium – in addition to unpaid principal and accrued interest. The debtors’ plan provided that if the noteholders voted in favor of the plan and agreed to waive their make-whole claim they would receive cash in the full amount of their claims (except for the make-whole payment claim). However, if the noteholders rejected the plan, the debtors sought to “cram down” the noteholders and satisfy their claims with replacement notes, but the noteholders would maintain their right to argue for the make-whole payments. The debtors proposed that the replacement notes for the First Lien noteholders would have a principal amount equal to the noteholders’ allowed claims, provide for first-priority liens, and have a seven-year maturity with interest equal to the treasury rate plus 1.5 percent. Similarly, the debtors proposed that the replacement notes for the 1.5 Lien noteholders would have a principal amount equal to the noteholders’ allowed claims, provide for second priority liens, and have a seven-and-a-half year maturity with an interest rate equal to the treasury rate plus 2 percent. All the First Lien and 1.5 Lien noteholders voted to reject the plan and filed objections to confirmation of the plan, arguing they were entitled to receive the make-whole payments and that their treatment under the plan was not “fair and equitable” as required by section 1129(b).

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For more information, please contact:

Trevor Hoffmann


Kenric D. Kattner


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