In the Matter of: MPM Silicones, L.L.C. Momentive Performance Materials Incorporated, Apollo Global Management, LLC, Ad Hoc Committee of Second Lien Holders, Plaintiffs-Appellees,
BOKF, NA, as First Lien Trustee, Wilmington Trust, N.A., as 1.5 Lien Trustee, Defendants-Appellants. U.S. Bank National Association, as Indenture Trustee, Plaintiff-Appellant,
Wilmington Savings Fund Society, FSB, as Successor Indenture Trustee, Momentive Performance Materials Incorporated, Ad Hoc Committee of Second Lien Noteholders, Apollo Management, LLC, and certain of its affiliated funds, Defendants-Appellees.
Submitted: November 9, 2016
from the United States District Court for the Southern
District of New York. Vincent L. Briccetti, Judge.
groups of creditors separately appeal a judgment of the
United States District Court of the Southern District of New
York (Briccetti, J) affirming the confirmation of
Debtors' Chapter 11 reorganization plan by the U.S.
Bankruptcy Court (Drain, /). The creditors argue that the
plan improperly eliminated or reduced the value of notes they
held. Debtors argue that the plan was properly confirmed and
that these appeals should be dismissed as equitably moot.
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. We remand so that
the bankruptcy court can address the single deficiency we
identify with the proceedings below which is the process for
determining the proper interest rate under the cramdown
provision of Chapter 11. We decline to dismiss these appeals
as equitably moot.
DOUGLAS HALLWARD-DRIEMEIER, Ropes & Gray LLP, Washington
D.C.; MARK R. SOMERSTEIN, MARK I. BANE, Ropes & Gray, New
York, NY, for Wilmington Trust, National Association as
Indenture Trustee for the 1.5 Lien Notes.
DANIELLE SPINELLI, JOEL MILLAR, Wilmer Cutler Pickering Hale
and Dorr LLP, Washington, D.C.; PHILIP D. ANKER, ALAN E.
SCHOENFELD, Wilmer Cutler Pickering Hale and Dorr LLP, New
York, NY; MICHAEL J. SAGE, BRAIN E. GREER, Dechert LLP, New
York, NY, G. ERIC BRUNSTAD, JR., Dechert LLP, Hartford, CT,
for BOKF, NA as First Lien Trustee.
SUSHEEL KIRPALANI, Quinn Emanuel Urquhart & Sullivan, LLP,
New York, NY; ROY T. ENGLERT, JR., MARK T. STANCIL, ALAN E.
UNTEREINER, MATTHEW M. MADDEN, Robbins, Russell, Englert,
Orseck, Untereiner & Sauber LLP, Washington, D.C., for U.S.
Bank National Association, as Indenture Trustee.
DIZENGOFF, ABID QURESHI, BRIAN T. CARNEY, Akin Gump Strauss
Hauer & Feld LLP, New York, NY; PRATIK A. SHAH, JAMES E.
TYSSE, Z.W. JULIUS CHEN, Akin Gump Strauss Hauer & Feld LLP,
Washington, D.C., for Momentive Performance Materials Inc.
and Apollo Management, LLC, and certain of its affiliated
T. BAIO, JAMES C. DUGAN, Willkie Farr & Gallagher LLP, New
York, NY, for Momentive Performance Materials Inc.
F. DUNNE, MICHAEL L. HIRSCHFELD, Milbank, Tweed, Hadley &
McCloy LLP, New York, NY, for Ad Hoc Committee of Second Lien
H. LIEBERMAN, PATRICK SIBLEY, Pryor Cashman LLP, New York,
NY, for Wilmington Savings Fund Society, FSB, as Successor
J. MANN, Columbia Law School, New York, NY, for Amici Curiae
Loan Syndications and Trading Association, the Managed Funds
Association, and the Securities Industry and Financial
Before: CABRANES, POOLER, and PARKER, Circuit Judges.
Barrington D. Parker, Circuit Judge
appeals by three groups of creditors challenge various
aspects of Appellee Momentive Performance Materials,
Inc.'s ("MPM, ") substantially consummated plan
of reorganization under Chapter 11 of the U.S. Bankruptcy
Code. With one exception, we conclude that the
reorganization plan (the "Plan") confirmed by the
bankruptcy court and affirmed by the district court comports
with Chapter 11. We remand so that the bankruptcy court can
address the single deficiency we identify in the proceedings
below, which is the process for determining the proper
interest rate under the cramdown provision of Chapter 11.
leading producer of silicone, faced serious financial
problems after it took on significant new debt obligations
beginning in the mid-2000s.See 15-1771 JA 286-88;
15-1682 JA 1605-06. Following these debt issuances, MPM was
substantially overleveraged, and ultimately filed a petition
under Chapter 11. The four relevant classes of notes issued
by MPM are as follows:
2006, MPM issued $500 million in subordinated unsecured notes
(the "Subordinated Notes") pursuant to an indenture
(the "2006 Indenture"). 15-1771 JA 303. Appellant
U.S. Bank is the indenture trustee for the Subordinated
Notes. In 2009 MPM issued secured second-lien notes and
offered the Subordinated Notes holders the option of
exchanging their notes for the newly-issued second-lien
notes. The second-lien notes were offered at a 60% discount
but were secured. 15-1771 J A 2241. Holders of $118 million
of the Subordinated Notes accepted the offer, leaving $382
million in unsecured Subordinated Notes outstanding. 15-1771
2010, MPM issued approximately $1 billion in
"springing" second-lien notes (the
"Second-Lien Notes"). 15-1682 JA 1616; 15-1771 JA
476. The Second-Lien Notes were to be unsecured until the
$118 million of previously exchanged Subordinated Notes were
redeemed, at which point the "spring" in the lien
would be triggered. 15-1771 JA 517, 580-81. Once triggered,
the Second-Lien Notes would then (but only then) obtain a
security interest in the Debtor's collateral. The
exchanged Subordinated Notes were redeemed in November 2012,
15-1771 J A 721, at which point the trigger occurred and the
Second-Lien Notes became secured with second-priority liens
junior to other pre-existing liens on the Debtors'
collateral. A primary issue on this appeal is whether the
Second-Lien Notes have priority over the Subordinated Notes.
2012, MPM again issued more debt, this time in the form of
two classes of senior secured notes. Specifically, MPM issued
$1.1 billion in first-lien secured notes (the
"First-Lien Notes"), and $250 million in 1.5-lien
secured notes (the "1.5-Lien Notes, " and, with the
First-Lien Notes, the "Senior-Lien Notes"). 15-1682
JA 1615. Appellants BOKF and Wilmington Trust are the
indenture trustees for the First-Lien Notes and 1.5-Lien
Notes, respectively. Pursuant to the governing indentures
(the "2012 Indentures"), the Senior-Lien Notes were
to be repaid in full by their maturity date of October 15,
2020. They carried fixed interest rates of 8.875% and 10%,
respectively. The 2012 Indentures also called for the
recovery of a "make-whole" premium if MPM opted to
redeem the notes prior to maturity. Because the Second-Lien
Notes and the Senior-Lien Notes are secured by the same
collateral, the holders of those notes executed an
intercreditor agreement (the "Intercreditor
Agreement"), which provided that the Senior-Lien Notes
stood in priority to the Second-Lien Notes as to their
respective liens, but that each was junior to pre-existing
liens on MPM's collateral. 15-1771 JA 691-718. Other
primary issues on this appeal are whether the Senior-Lien
Note holders are entitled to the make-whole adjustment and
the cramdown interest rate they are entitled to if their
Notes are replaced under the Plan.
these notes were issued, MPM experienced significant
financial problems. See 15-1771 JA 284-88. In April
2014, MPM filed a petition under Chapter 11 and ultimately
submitted a reorganization plan to the bankruptcy court.
15-1682 JA 3841-912. Several elements of that Plan are at
issue on these appeals. The Plan provided for (i) a 100% cash
recovery of the principal balance and accrued interest on the
Senior-Lien Notes; (ii) an estimated 12.8%-28.1% recovery on
the Second-Lien Notes in the form of equity in the
reorganized Debtors; but (iii) no recovery on the
Subordinated Notes. 15-1771 JA 271-74.
Plan also gave the Senior-Lien Notes holders the option of
(i) accepting the Plan and immediately receiving a cash
payment of the outstanding principal and interest due on
their Notes (without a make-whole premium), or (ii) rejecting
the Plan, receiving replacement notes "with a present
value equal to the Allowed amount of such holder's
[claim], " and then litigating in the bankruptcy court
issues including whether they were entitled to the make-whole
premium and the interest rate on the replacement notes.
15-1771 JA 271-72; 15-1682 JA 3873-75. The Senior-Lien Notes
holders rejected the Plan, and, thus, elected the latter
appellants here-the Subordinated Notes holders and the
Senior-Lien Notes holders-opposed the Plan. (The Second-Lien
Notes holders unanimously accepted it.) The Subordinated
Notes holders, who were to receive nothing, contended that,
under relevant indenture provisions, their Notes were not
subordinate to the Second-Lien Notes holders and,
consequently, they were entitled to some recovery. The
Senior-Lien Notes holders opposed the Plan on the ground that
the replacement notes they received did not provide for the
make-whole premium, and carried a largely risk-free interest
rate that failed to comply with the Code because it was well
below ascertainable market rates for similar debt obligations
and thus was not fair and equitable because it failed to give
them the present value of their claim.
these objections, the bankruptcy court confirmed the Plan
following a four-day hearing. In re MPMSilicones,
LLC, 2014 WL 4436335 (Bankr. S.D.N.Y. Sept. 9, 2014),
affd, 531 B.R. 321 (S.D.N.Y. 2015). 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." 11 U.S.C. § 1129(b)(1).
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. In re MPMSilicones, LLC, 2014 WL
4436335, at *2-*11. It held the plan was fair to the
Senior-Lien Notes holders because the 2012 Indentures did not
require payment of the make-whole premium in the bankruptcy
context and because the interest rate on the proposed
replacement notes, even though well below a
"market" rate, was determined by a formula that
complied with the Code's cramdown provision. Id.
bankruptcy court's confirmation order triggered an
automatic 14-day stay during which Debtors could not
consummate the Plan. See Fed. R. Bankr. P. 3020(e).
Appellants aggressively took advantage of this period and
attempted to block the implementation of the Plan.
Specifically, prior to the expiration of the automatic stay,
appellants moved in the bankruptcy court to extend the stay
pending their appeal of the confirmation order, which the
court denied. See 15-1682 JA 4099, 4173. They then
promptly moved the district court for a stay, which was also
denied. See 15-1682 JA 183, 185. Appellants then
appealed the denial of the stay to this Court, and we
dismissed the appeal for lack of jurisdiction. 15-1682 JA
4872-73. Despite these efforts, the Debtors contend this
appeal is equitably moot, a contention with which we do not
appellants appealed the confirmation order to the district
court which affirmed the bankruptcy court's confirmation
order. 531 B.R. 321. The district court essentially agreed
with the bankruptcy court, concluding that: (i) the relevant
indentures unambiguously prioritize the Second-Lien Notes
over the Subordinated Notes, id. at 326-31; (ii) the
below market interest rate selected by the bankruptcy court
complied with the Code, id. at 331-34; and (iii)
under their indentures, the Senior-Lien Notes holders are not
entitled to the make-whole premium in the context of a
bankruptcy, id. at 335-38. The Subordinated Notes
holders, the First-Lien Notes holders, and the 1.5-Lien Notes
holders separately appealed.
exercise plenary review over a district court's
affirmance of a bankruptcy court's decisions, reviewing
de novo the bankruptcy court's conclusions of
law, and reviewing its findings of facts for clear
error." In re Lehman Bros., Inc., 808 F.3d 942,
946 (2d Cir. 2015) (internal quotation marks omitted).
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. Second, the Senior-Lien Notes holders
contend that the lower courts erroneously applied a
below-market interest rate to their replacement notes. Third,
the Senior-Lien Notes holders challenge the lower courts'
rulings that they are not entitled to a make-whole premium.
Finally, Debtors argue that we should dismiss these appeals
as equitably moot. 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. We reject the others.
lower courts concluded that the Plan, which provided no
distribution to the Subordinated Notes holders, complied with
the governing 2006 Indenture. The Subordinated Notes holders
argue this conclusion was erroneous because, under the terms
of the 2006 Indenture, their claims are not subordinate to
the Second-Lien Notes, whose holders recovered under the
plan. The Debtors, on the other hand, contend that the 2006
Indenture gives the Second-Lien Notes priority over the
Subordinated Notes. We agree with the Debtors, although for
somewhat different reasons from the lower courts which found
the relevant indenture provisions unambiguous. We find them
to be ambiguous, but resolve the ambiguities in favor of the
Subordinated Notes holders' argument begins with Section
10.01 of the 2006 Indenture, which states that the
Subordinated Notes are "subordinated in right of payment
... to the prior payment in full of all existing and future
Senior Indebtedness of the Company, " and that
"only Indebtedness of the Company that is Senior
Indebtedness of the Company shall rank senior to the
Securities in accordance with the provisions set forth
herein." 15-1771 JA 404. Accordingly, the Second-Lien
Notes stand in priority to the Subordinated Notes only if
they constitute "Senior Indebtedness."
Indebtedness" in the 2006 Indenture begins with what the
parties refer to as the "Baseline Definition, "