A ruling Tuesday by U.S. Bankruptcy Court Judge Robert Drain in the case of Momentive Performance Materials Inc. has shaken up the distressed investing world, Dow Jones Daily Bankruptcy Review reported yesterday. Momentive’s bankruptcy pits its owner, private-equity firm Apollo Global Management LLC, against funds invested in $1.35 billion of the company’s first-lien bonds. First-lien creditors wanted Momentive to repay their bonds in full plus a premium, or make-whole, or to give them new bonds paying a market rate of interest. Apollo offered to pay the bondholders par value and accrued interest, but not the make-whole, threatening to swap them into new debt at a low interest rate if they didn’t agree. In a marathon four-hour ruling from the bench Tuesday, Judge Drain sided with Apollo and said that first-lien bond holders must accept the debt offered by Momentive, albeit at a slightly higher rate of interest than the company first proposed. The decision, which was based on the principle that first-lien lenders were not entitled to make a profit on new debt they would receive, flies in the face of prior case law.
