Molycorp Incorporated has reached an agreement to clear its way out of bankruptcy. The company is the largest US producer of rare earth materials.
Based on the documents from the court, Molycorp has agreed to make the company available for sale or for reorganization. It also has paved the way to help the company's unsecured creditors together with its lender, the Oaktree Capital Management, according to Reuters.
However, the agreement didn't include the investors which have a part of the $650 million bond that was issued by the company. The government pension insurer also was not included on the deal.
The two parties said they will oppose the plan of a reorganization of the company that would basically be the basis of the settlement. But in the end, the topic boiled down to the reason of the Molycorp's downfall.
According to Judge Christopher Sontchi, he was very pleased that both parties have already agreed with the settlement.
During 2011, Molycorp went big time after commodities boom and Chinas exportation was restricted. But after a global economic slowdown, China was able to ease up its export restrictions which sent the prices for rare earth down. According to Nasdaq, Molycorp which had taken on debt to build up its rare-earths processing business in the US has suffered and asked Oaktree for help.
The unsecured creditors said in their 123-page complaint that some of Oaktree's financing violated Canada's usury law. They also said that Oaktree engaged in private equity dealings which include requirements for $113 million in payments of stipulated losses on intact equipment and prepaid interest has caused harm to other creditors as per Law 360.
Based on the agreement, if Molycorp plans to reorganize, Oaktree management will own 92.5 percent of the company while the remaining 7.5 percent will be given to its junior creditors. On the other hand, if they plan to sell the company, Oaktree will still get 92.5 percent of the sale which could reach to about $513.8 million while the remaining will go to its junior creditors.
