Momentive Performance Materials Inc., a maker of silicones and quartz products, filed for bankruptcy after struggling to make payments on debt dating to its 2006 buyout by Leon Black’s Apollo Global Management LLC. (APO:US)
The company listed $2.69 billion in assets and $4.17 billion in debt in its Chapter 11 filing yesterday in U.S. Bankruptcy Court in White Plains, New York. Momentive hasn’t posted an annual profit since Apollo bought it for $3.8 billion, according to data compiled by Bloomberg. Momentive said in a statement it secured $1.3 billion in exit financing.
“The LBO debt has been an issue,” John Rogers, a senior vice president at Moody’s Investors Service who follows Momentive, said in a phone interview before the filing. “Whenever you lever up a company like this, you’re prone to exogenous shocks. First you had the 2008 recession, then people adding capacity in industries like silicone resins.”
Momentive, based in Waterford, New York, was General Electric Co.’s advanced-materials unit until Apollo bought and renamed it. In 2010, New York-based Apollo combined Momentive with Hexion Specialty Chemicals to create Momentive Performance Materials Holdings LLC, which filed for an initial public offering the following year.
“We intend to move quickly to implement our pre-negotiated balance sheet restructuring plan, which will eliminate more than $3 billion of debt,” Craig Morrison, chairman and chief executive officer of Momentive, said in the statement.
The company has a $570 million commitment in debtor-in-possession financing led by JP Morgan Securities LLC as lead arranger. The financing and cash from the company’s operations will help Momentive meet its operational and restructuring needs.
The Columbus, Ohio-based parent (MPM:US) and Momentive Specialty Chemicals, the former Houston Specialty Chemicals, weren’t included in the bankruptcy filing.
Momentive Specialty Chemicals has a “fully independent debt capital structure and a separate and strong balance sheet,” according to the statement.
Innkeepers USA Trust, a real-estate investment trust whose parent was managed by an Apollo affiliate, filed for bankruptcy in 2010, about two years after home-goods retailer Linens ’n Things Inc., an Apollo holding. The private-equity firm also has invested in debt and purchased assets of bankrupt companies, such as Hostess Brands’ Twinkies business in 2013.
Black, who pioneered the leveraged buyout business with Michael Milken at Drexel Burnham Lambert, is the 76th-richest person in the U.S., worth $5.9 billion, according to the Bloomberg Billionaires Index.
“Overcapacity in its industry sector” hindered Momentive’s ability to keep up with debt payments, John Kompa, a company spokesman, said in a statement on April 2, two days after the company warned that it was in talks with stakeholders that might lead to a bankruptcy filing.
Momentive makes silicone products used in caulk, adhesive labels, foam products, cosmetics and tires, according to the company. Its quartz business has been hurt by weak semiconductor demand, Morrison said in November.
Momentive’s net loss was $365 million in 2012, according to data compiled by Bloomberg. Standard & Poor’s in February cut Momentive’s credit rating to the fourth-lowest junk grade, citing “dim” prospects of avoiding a default or debt restructuring in the next nine months.
Momentive’s $381.9 million of 11.5 percent subordinated notes due in December 2016 were unchanged today at 30 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The case is In re Momentive Performance Materials Inc., 14-bk-22509, U.S. Bankruptcy Court, Southern District of New York (White Plains).
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