Molycorp lines up new bankruptcy loan from Oaktree

Molycorp lines up new bankruptcy loan from Oaktree

8:12 AM, 3rd July 2015
Molycorp lines up new bankruptcy loan from Oaktree
Molycorp, the US’s only rare earths producer, has picked Oaktree for its bankruptcy financing over another offer from secured bondholders. © WSJ photo

NEW YORK, US: 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 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 duelling lenders are due in court 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 in the US 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.

© Wall Street Journal News



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