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Matter of MPM Silicones, L.L.C., 874 F.3d 787, Bankr. L. Rep. P 83,176

Facts

Momentive Performance Materials, Inc. (MPM) faced significant financial difficulties after accruing substantial debt in the mid-2000s, leading to its Chapter 11 filing in April 2014. MPM issued various classes of notes, including subordinated, second-lien, and senior-lien notes, with the plan proposing different recovery rates for each class. The plan provided full recovery for senior-lien noteholders, partial recovery for second-lien noteholders, and no recovery for subordinated noteholders, which led to the appeals from the noteholders who felt their interests were unfairly treated.

After these notes were issued, MPM experienced significant financial problems. In April 2014, MPM filed a petition under Chapter 11 and ultimately submitted a reorganization plan to the bankruptcy court.

Issue

The main legal issues included whether the proposed Chapter 11 plan violated the absolute priority rule, whether the bankruptcy court properly determined the cramdown interest rate, and whether senior-lien noteholders were entitled to a make-whole premium.

These appeals raise four issues. First, the Subordinated Notes holders challenge the lower courts' conclusions that their claims are subordinate to the Second-Lien Notes holders' claims.

Rule

The court applied the principles of Chapter 11's cramdown provision, which allows confirmation of a reorganization plan despite objections from certain classes of creditors if the plan is fair and equitable and does not discriminate unfairly among impaired classes.

Confirmation was facilitated by Chapter 11's 'cramdown' provision, which allows a bankruptcy court to confirm a reorganization plan notwithstanding non-accepting classes if the plan 'does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.'

Analysis

The court found that the plan did not violate the absolute priority rule as it provided for a partial distribution to second-lien noteholders while subordinated noteholders received nothing, which was consistent with the indenture provisions. The court also determined that the bankruptcy court should have engaged in a two-stage process to assess the appropriate cramdown interest rate, considering whether an efficient market existed for the loans. Lastly, the court ruled that the senior-lien noteholders were not entitled to a make-whole premium as per the terms of their indentures.

The bankruptcy court concluded that the Plan was fair to the Subordinated Notes holders, despite no recovery, because the 2006 Indenture called for their subordination to the Second-Lien Notes.

Conclusion

The court affirmed the bankruptcy court's confirmation of the plan in part, reversed it in part regarding the interest rate determination, and remanded the case for further proceedings.

We find merit only in the Senior-Lien Notes holders' contention with respect to the method of calculating the appropriate interest rate for the replacement notes.

Who won?

Momentive Performance Materials, Inc. prevailed in the case as the court upheld the confirmation of its Chapter 11 plan, finding it compliant with the provisions of Chapter 11, except for the interest rate determination.

With one exception, we conclude that the plan confirmed by the bankruptcy court and affirmed by the district court comports with the provisions of Chapter 11.

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