MCP plans to file for chapter 11# Stock
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Rare-Earths Miner Molycorp Prepares to File for Bankruptcy Protection
Molycorp Inc., the only U.S. miner and processor of rare-earths elements,
plans to file for chapter 11 bankruptcy protection as soon as this month to
cut its $1.7 billion debt load, according to people familiar with the matter.
The Greenwood Village, Colo.-based company is completing a plan that would
involve senior bondholders exchanging some or all of their debt for
ownership of the company, some of the people said. It is exploring options
such as an equity sale to junior creditors and shareholders to ensure the
company would emerge in sound financial health, they added.
Molycorp is also weighing an offer from the senior bondholders for a loan
that would fund its operations during bankruptcy, the people said. Senior
lender Oaktree Capital Management LP may also participate in that loan, they
added.
The plans aren't final and could change, the people cautioned. Companies and
their advisers sometimes use the threat of bankruptcy to bring creditors
and other stakeholders to the negotiating table.
The plan marks a dramatic turn for Molycorp, which rode temporary concerns
of a shortage in rare earths--elements used in a host of electronic devices-
-to a $6 billion market capitalization in 2011. But since then, China has
relaxed restrictions on exports of rare earths, oversupplying a market that
is relatively small compared with those of coal or iron ore.
Amid the glut, the company posted a three-year streak of annual losses
through 2014. It had $134 million in cash as of March 31, according to a
regulatory filing.
Molycorp skipped a $32.5 million bond interest payment due this week,
entering a 30-day grace period before a default. In March, it warned it may
not be able to continue as a going concern if its debt-restructuring efforts
failed.
One of the company's challenges in completing a restructuring has been
avoiding a big payout to Oaktree, the Los Angeles investing firm co-founded
by distressed-debt veteran Howard Marks. Molycorp in September closed on a $
400 million loan deal with Oaktree, which bought the company time to ramp up
production at a mine and processing facility near the California-Nevada
border.
But the Oaktree deal came with strings attached, such as the right to a
large payment in the event of any prepayment or acceleration of the debt.
Creditors have used such rights—known as make-whole provisions—to fight
for big premiums in the recent bankruptcy cases of Texas power company
Energy Future Holdings Corp. and silicone and quartz producer Momentive
Performance Materials Inc.
While arguments for such payouts haven't always worked out for creditors,
Oaktree's make-whole language--written while the strategy was at the top of
investors' minds--is "state-of-the-art," according to a note by research
firm CRT Capital Group LLC.
As a result, Molycorp has weighed options such as continuing to pay interest
on Oaktree's after the bankruptcy filing and reinstating it upon emergence,
in an effort to avoid triggering the payout, according to people familiar
with the matter.
Write to Matt Jarzemsky at [email protected]
/* */ and John W. Miller at
[email protected]
/* */
Access Investor Kit for Molycorp, Inc.
Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US6087531090
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
06-04-150105ET
Copyright (c) 2015 Dow Jones & Company, Inc.
Molycorp Inc., the only U.S. miner and processor of rare-earths elements,
plans to file for chapter 11 bankruptcy protection as soon as this month to
cut its $1.7 billion debt load, according to people familiar with the matter.
The Greenwood Village, Colo.-based company is completing a plan that would
involve senior bondholders exchanging some or all of their debt for
ownership of the company, some of the people said. It is exploring options
such as an equity sale to junior creditors and shareholders to ensure the
company would emerge in sound financial health, they added.
Molycorp is also weighing an offer from the senior bondholders for a loan
that would fund its operations during bankruptcy, the people said. Senior
lender Oaktree Capital Management LP may also participate in that loan, they
added.
The plans aren't final and could change, the people cautioned. Companies and
their advisers sometimes use the threat of bankruptcy to bring creditors
and other stakeholders to the negotiating table.
The plan marks a dramatic turn for Molycorp, which rode temporary concerns
of a shortage in rare earths--elements used in a host of electronic devices-
-to a $6 billion market capitalization in 2011. But since then, China has
relaxed restrictions on exports of rare earths, oversupplying a market that
is relatively small compared with those of coal or iron ore.
Amid the glut, the company posted a three-year streak of annual losses
through 2014. It had $134 million in cash as of March 31, according to a
regulatory filing.
Molycorp skipped a $32.5 million bond interest payment due this week,
entering a 30-day grace period before a default. In March, it warned it may
not be able to continue as a going concern if its debt-restructuring efforts
failed.
One of the company's challenges in completing a restructuring has been
avoiding a big payout to Oaktree, the Los Angeles investing firm co-founded
by distressed-debt veteran Howard Marks. Molycorp in September closed on a $
400 million loan deal with Oaktree, which bought the company time to ramp up
production at a mine and processing facility near the California-Nevada
border.
But the Oaktree deal came with strings attached, such as the right to a
large payment in the event of any prepayment or acceleration of the debt.
Creditors have used such rights—known as make-whole provisions—to fight
for big premiums in the recent bankruptcy cases of Texas power company
Energy Future Holdings Corp. and silicone and quartz producer Momentive
Performance Materials Inc.
While arguments for such payouts haven't always worked out for creditors,
Oaktree's make-whole language--written while the strategy was at the top of
investors' minds--is "state-of-the-art," according to a note by research
firm CRT Capital Group LLC.
As a result, Molycorp has weighed options such as continuing to pay interest
on Oaktree's after the bankruptcy filing and reinstating it upon emergence,
in an effort to avoid triggering the payout, according to people familiar
with the matter.
Write to Matt Jarzemsky at [email protected]
/* */ and John W. Miller at
[email protected]
/* */
Access Investor Kit for Molycorp, Inc.
Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US6087531090
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
06-04-150105ET
Copyright (c) 2015 Dow Jones & Company, Inc.
