Molycorp Asks to Seal Data in Bankruptcy Ballot Materials
December 1, 2015 (Source: WSJ) — Embattled rare-earths company Molycorp Inc. wants to keep elements of its chapter 11 plan secret, including financial projections and valuation analyses prepared by its advisers.
The request to seal information “temporarily” covers voting materials prepared for creditors entitled to cast ballots on Molycorp’s plan to emerge from bankruptcy.
Molycorp filed for chapter 11 bankruptcy protection in June, its prospects diminished by a change in Chinese trade policy that sent rare-earths prices plunging. Rare earths are elements used in small amounts in consumer electronics.
On Dec. 8, Molycorp is scheduled to ask a bankruptcy judge to approve voting materials on a chapter 11 plan that provides for a variety of possible outcomes of its restructuring. However, Molycorp says it can’t disclose fundamental financial information until after the judge signs off on the voting materials.
The company says the secrecy is necessary to protect Molycorp’s financial information from the prying eyes of entities that have been invited to submit bids on the company. Preliminary bids are due after the hearing on the disclosure statement, a report that sets out for creditors the information they need to decide how to cast their ballots on a chapter 11 plan.
A spokesman for Molycorp declined to discuss the sealing motion, which has been set for hearing the same day as the disclosure statement, the report that is sent to creditors being asked to vote on a chapter 11 plan. The question for the judge to weigh in approving a disclosure statement is whether creditors have been provided sufficient financial information to make a decision. Molycorp’s creditors won’t get to test the plan’s financial data until after the voting materials are already approved, if the company’s sealing motion is approved.
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Information Molycorp has asked to keep secret in its chapter 11 plan materials includes standard material shown to creditors when their votes are solicited, such as projections, the value of businesses and what the assets would be worth in a liquidation.
Court papers say creditors will get to see the information by the time they’re actually asked to vote on the chapter 11 plan.
Creditors have criticized Molycorp’s sale process, raising questions about timing and the information being provided. Molycorp has countered with assurances that bidders will get complete, accurate information about the businesses going up for sale. Lawyers have said the company’s rare-earths-processing business is valuable, but the California mining facility is being mothballed and may be offered for sale separately.
Bankruptcy-marketing processes routinely involve disclosure of detailed financial information to prospective bidders. In a Nov. 11 court filing, Molycorp said it had provided “most” of the 25 entities that had indicated interest in the company “a comprehensive confidential information memorandum regarding the Debtors’ businesses.”
In court papers filed in November, bondholders said their financial adviser had identified “multiple problems” with the company’s business plan, and said “management was unable to justify the new projections in basic terms.” Bondholders said they were concerned the problems they identified would harm the sales process.
In broad outline, Molycorp is pursuing what’s called a “dual-track” bankruptcy-exit proposal. If it gets a good enough price, it will sell the company. If not, it will reorganize. The decision to sell the whole company, or just part, will be made after Molycorp tests the market for offers.
Ironshore Indemnity, Inc., Lexon Insurance Co. and Bond Safeguard Insurance Co., which have issued millions of dollars worth of bonds for Molycorp’s California operation, objected to the sale procedures, warning the process “dooms this case to an environmental quagmire.”
Judge Christopher Sontchi has ordered Molycorp and senior lender Oaktree Capital Group (OAK) into mediation with unhappy creditors who allege the company has already handed control of its fate to Oaktree. Oaktree and Molycorp deny the allegations, but bondholders and unsecured creditors sought to open the bankruptcy proceeding up to competing chapter 11 plans.
Raj Shah has professional experience working for over a half a dozen years at financial firms such as Merrill Lynch and First Allied Securities Inc., ... <Read more about Raj Shah>