Molycorp, the rare-earths metal producer, warned of a liquidation scenario and presented financial information that justified its exit from Chapter 11 bankruptcy in a way that its business operation is trimmed.

According to Molycorp, its value would be as much as $252 million under a liquidation scenario, which is far enough to cover its debts. The rare-earths metal producer said it had more than $2 billion in debts.

Oaktree Capital Management is a major lender to the rare-earths metal producer. The asset management firm provided $400 million in secured financing for Molycorp in September last year and another $130 million in debtor-in-possession (DIP) financing package in July this year to help save the company.

Molycorp
Chart via S&P Capital IQ

Molycorp says more than $1B in debts will be unpaid in liquidation scenario

Based on the estimates in new bankruptcy-court documents, Oaktree Capital would collect most, approximately 50% of what it is owed if the rare-earths metal producer to fails to obtain confirmation of its plan to exit bankruptcy.

Molycorp will send the estimates along with voting materials to its creditors, who will decide its fate. The voting materials presented the company’s justification to receive approval for its plan to exit bankruptcy, which is scheduled for court review in January.

The rare-earths metal producer must provide adequate information to creditors that its Chapter 11 restructuring plan its better than liquidation. The financial advisers of Molycorp estimated that its surviving businesses will be valued at around $417 million if reorganized.

On the other hand, the financial advisers estimated that more than $1 billion in debts will not be paid if the company will be sold for scrap in a liquidation scenario.

Financial restructuring agreement with creditors

Molycorp filed for filed for Chapter 11 bankruptcy protection to facilitate its financial restructuring in June. The company entered into a restructuring agreement with creditors that hold more than 70% of the total amount of its 10% senior secured notes. The deal provides a financial restructuring of its debt worth $1.7 billion, and up to $225 million in gross proceeds in new financing to support its operations while completing its negotiations with creditors.

U.S. Trustee Andrew Vara opposed the company’s Chapter 11 plan based on the reason that it surrendered too much power to Oaktree Capital when it comes to weighing options. The asset management firm stepped in front of other lenders and negotiated a favorable position in the capital structure, which allowed it to have a significant advantage to decide the fate of the company.