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In re MPM Silicones, LLC

United States District Court, S.D. New York

May 4, 2015

In Re: MPM SILICONES, LLC, et al., Debtors.
v.
WILMINGTON SAVINGS FUND SOCIETY, FSB, as Indenture Trustee, MOMENTIVE PERFORMANCE MATERIALS INC., MOMENTIVE PERFORMANCE MATERIALS WORLDWIDE INC., MOMENTIVE PERFORMANCE MATERIALS USA INC., JUNIPER BOND HOLDINGS I LLC, JUNIPER BOND HOLDINGS II LLC, JUNIPER BOND HOLDINGS III LLC, JUNIPER BOND HOLDINGS IV LLC, MOMENTIVE PERFORMANCE MATERIALS QUARTZ, INC., MPM SILICONES, LLC, MOMENTIVE PERFORMANCE MATERIALS SOUTH AMERICA INC., MOMENTIVE PERFORMANCE MATERIALS CHINA SPV INC., Appellees. U.S. BANK NATIONAL ASSOCIATION, as Indenture Trustee, Appellant, BOKF, NA, solely as Trustee for the MPM Escrow LLC and MPM Finance Escrow Corp. 8.875% First Priority Senior Secured Notes due 2020; WILMINGTON TRUST, NATIONAL ASSOCIATION, solely as Trustee for the Momentive Performance Materials Inc. 10% Senior Secured Notes due 2020, Appellants,
v.
MOMENTIVE PERFORMANCE MATERIALS INC., MOMENTIVE PERFORMANCE MATERIALS WORLDWIDE INC., MOMENTIVE PERFORMANCE MATERIALS USA INC., JUNIPER BOND HOLDINGS I LLC, JUNIPER BOND HOLDINGS II LLC, JUNIPER BOND HOLDINGS III LLC, JUNIPER BOND HOLDINGS IV LLC, MOMENTIVE PERFORMANCE MATERIALS QUARTZ, INC., MPM SILICONES, LLC, MOMENTIVE PERFORMANCE MATERIALS SOUTH AMERICA INC., and MOMENTIVE PERFORMANCE MATERIALS CHINA SPV INC., Appellees

For MPM Silicones, LLC, In Re, Debtor (7:14-cv-07471-VB, 7:14-cv-07472-VB): James C. Dugan, LEAD ATTORNEY, Willkie Farr & Gallagher LLP (NY), New York, NY.

For U.S. Bank National Association, as indenture trustee, Appellant (7:14-cv-07471-VB, 7:14-cv-07472-VB): Susheel Kirpalani, LEAD ATTORNEY, Quinn Emanuel, New York, NY.

For Momentive Performance Materials Inc., Appellee (7:14-cv-07471-VB, 7:14-cv-07472-VB): James C. Dugan, Jennifer Jaye Hardy, Matthew A Feldman, Rachel Caroline Strickland, LEAD ATTORNEYS, Willkie Farr & Gallagher LLP (NY), New York, NY.

For Wilmington Savings Fund Society, FSB, as successor indenture trustee, Appellee (7:14-cv-07471-VB, 7:14-cv-07472-VB): Patrick Sibley, Seth Howard Lieberman, LEAD ATTORNEYS, Pryor Cashman LLP, New York, NY.

For Ad Hoc Committee of Second Lien Noteholders, Appellee (7:14-cv-07471-VB, 7:14-cv-07472-VB): Dennis F. Dunne, LEAD ATTORNEY, Milbank, Tweed, Hadley & McCloy LLP (NYC), New York, NY; Michael Lane Hirschfeld, Samuel Alfred Khalil, LEAD ATTORNEYS, Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, CA.

For Apollo Management, LLC, and certain of its affiliated funds, Appellee (7:14-cv-07471-VB, 7:14-cv-07472-VB): Abid Qureshi, Deborah Jill Newman, Ira S. Dizengoff, LEAD ATTORNEYS, Akin Gump Strauss Hauer & Feld LLP (NYC), New York, NY; Philip Charles Dublin, LEAD ATTORNEY, Akin Gump Strauss Hauer & Feld LLP, New York, NY.

For MPM Silicones, LLC, In Re, Debtor (7:14-cv-07492-VB): James C. Dugan, Roger David Netzer, LEAD ATTORNEYS, Willkie Farr & Gallagher LLP (NY), New York, NY.

For BOKF, NA, as First Lien Trustee, Appellant (7:14-cv-07492-VB): Brian E. Greer, Mauricio Alejandro Espana, LEAD ATTORNEYS, Dechert, LLP (NYC), New York, NY; Mark Rodney Somerstein, LEAD ATTORNEY, Kelley Drye & Warren, LLP (NY), New York, NY; Michael J. Sage, LEAD ATTORNEY, Dechert LLP, New York, NY; Danielle Spinelli, Wilmer Cutler Pickering Hale & Dorr, L.L.P. (NY), Washington, DC, NW; Philip David Anker, Wilmer Cutler Pickering Hale and Dorr LLP (NYC), New York, NY; William J. Perlstein, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC.

For Wilmington Trust, N.A., as 1.5 Lien Trustee, Appellant (7:14-cv-07492-VB): Brian James Rooder, LEAD ATTORNEY, Davis Polk & Wardwell L.L.P., New York, NY; Mark Irwin Bane, Mark Rodney Somerstein, LEAD ATTORNEYS, Kelley Drye & Warren, LLP (NY), New York, NY; Michael J. Sage, LEAD ATTORNEY, Dechert LLP, New York, NY; Michael Stephen Winograd, LEAD ATTORNEY, Ropes & Gray LLP (NYC), New York, NY; Philip David Anker, Wilmer Cutler Pickering Hale and Dorr LLP (NYC), New York, NY.

For Momentive Performance Materials Inc., Appellee (7:14-cv-07492-VB): Dan Cogan Kozusko, LEAD ATTORNEY, Willkie Farr & Gallagher LLP, New York, NY; James C. Dugan, Joseph Thompson Baio, Matthew A Feldman, Roger David Netzer, LEAD ATTORNEYS, Willkie Farr & Gallagher LLP (NY), New York, NY.

For Apollo Global Management LLC, Appellee (7:14-cv-07492-VB): Ira S. Dizengoff, Stephen Michael Baldini, LEAD ATTORNEYS, Akin Gump Strauss Hauer & Feld LLP (NYC), New York, NY; Philip Charles Dublin, LEAD ATTORNEY, Akin Gump Strauss Hauer & Feld LLP, New York, NY.

For Ad Hoc Committee of Second Lien Noteholders, Appellee (7:14-cv-07492-VB): Dennis F. Dunne, LEAD ATTORNEY, Milbank, Tweed, Hadley & McCloy LLP (NYC), New York, NY; Samuel Alfred Khalil, LEAD ATTORNEY, Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, CA.

MEMORANDUM DECISION

Vincent L. Briccetti, United States District Judge.

This case involves related appeals from proceedings in the United States Bankruptcy Court for the Southern District of New York (Robert D. Drain, Judge), during which the Joint Chapter 11 Plan (the " Plan" ) of Reorganization for Momentive Performance Materials Inc. (" MPM" ) and its affiliated debtors (collectively with MPM, the " Debtors" ) was confirmed.

The Debtors filed a Chapter 11 petition on April 13, 2014. After several months of negotiations, Judge Drain held a multi-day confirmation hearing and issued a bench decision on August 26, 2014, which was later corrected and modified in a bench decision on September 9, 2014. On September 11, 2014, Judge Drain issued a written order to effectuate the bench decisions. These appeals stem from the September 9, 2014, bench decision and the September 11, 2014, written order (the " Orders" ).

Appellant U.S. Bank National Association (" U.S. Bank" ) contends the Bankruptcy Court erred in confirming the Plan despite the Plan's failure to provide any distributions to holders of subordinated notes (the " Subordinated Notes" ) issued pursuant to an indenture agreement dated December 4, 2006 (the " 2006 Indenture" ).

Appellants BOKF, N.A., and Wilmington Trust, National Association, contend the Bankruptcy Court chose the wrong cramdown interest rate and erred in confirming the Plan despite the Plan's failure to provide a " make-whole" payment to holders of senior lien notes issued pursuant to indentures dated May 25 and October 25, 2012 (the " 2012 Indentures" ).

For the following reasons, the Bankruptcy Court's Orders are AFFIRMED.

The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 158(a).

BACKGROUND

MPM, together with its Debtor and non-Debtor subsidiaries (collectively, the " Company" ), is one of the world's largest producers of silicones and silicone derivatives, which are used in the manufacture of a myriad of industrial and household products. The Company began as the Advanced Materials business of General Electric Company (" GE" ). In 2006, investment funds affiliated with Apollo Global Management, LLC (collectively, " Apollo" ), acquired the Company from GE.

I. Facts Leading up to Bankruptcy

At the time Apollo acquired the Company, the Debtors issued substantial debt obligations, including the Subordinated Notes. The Subordinated Notes were issued pursuant to the 2006 Indenture,[1] which describes the relative ranking of the Subordinated Notes in comparison with other debt obligations issued by the Debtors. The 2006 Indenture provides 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." (U.S. Bank Ex. D, § 10.01). Senior Indebtedness is defined, in relevant part, as:

all Indebtedness . . . unless the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such obligations are subordinated in right of payment to any other Indebtedness of the Company[; ] [the " Base Definition" ] . . . provided, however, that Senior Indebtedness shall not include, as applicable:
4) any Indebtedness or obligation of the Company . . . that by its terms is subordinate or junior in any respect to any other Indebtedness or obligation of the Company . . . including any Pari Passu Indebtedness.

(Id., § 1.01).

In 2010, the Debtors issued springing second lien notes (the " Second Lien Notes" ). The Second Lien Notes were unsecured when issued, but would become secured if all second lien notes issued in 2009 were redeemed. When the Second Lien Notes were issued, the Debtors stated that " [p]rior to and following the Springing Lien Trigger Date, the [Second Lien] Notes . . . will be senior indebtedness" and rank " senior in right of payment to . . . the Company's existing subordinated notes." (Debtors' Subordinated Notes Ex. 3). In November 2012, the Second Lien Notes became secured by a junior lien--that is, the lien " sprung" --because all of the second lien notes issued in 2009 were redeemed.

In 2012, the Debtors issued two additional classes of senior secured notes--the 1.5 Lien Notes and the First Lien Notes (collectively, the " Senior Lien Notes" ). The 1.5 Lien Notes were issued at an interest rate of 10% pursuant to an indenture dated May 25, 2012, and the First Lien Notes were issued at an interest rate of 8.875% pursuant to an indenture dated October 25, 2012.[2] The Senior Lien Notes had a maturity date of October 15, 2020.

In addition, the Senior Lien Notes provide for the payment of a " make-whole" premium if the Senior Lien Notes are redeemed before October 15, 2015:

[P]rior to October 15, 2015, the Issuer may redeem the [Senior Lien] Notes at its option, in whole at any time or in part from time to time . . . at a redemption price equal to 100% of the principal amount of the [Senior Lien] Notes redeemed plus the Applicable Premium as of, and accrued and unpaid ...

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