February 23, 2016 / 7:37 PM / 4 years ago

UPDATE 1-Creditors of bankrupt rare earths miner Molycorp reach deal

(Adds background, details from Tuesday’s court hearing)

By Tom Hals

Feb 23 (Reuters) - Creditors of Molycorp Inc have reached a deal to divide up the value of the largest U.S. producer of rare earth materials, which should help clear the way for the company to exit bankruptcy.

According to court documents, the deal allows for the sale of the company or a reorganization and ends litigation between the company’s unsecured creditors and Molycorp’s lender, Oaktree Capital Management.

However, the deal does not involve investors who hold a portion of $650 million of bonds issued by Molycorp, and also excludes the government’s pension insurer. Both told a U.S. Bankruptcy Court hearing on Tuesday in Wilmington, Delaware, that they would likely oppose the plan of reorganization that would be drafted based on the settlement.

Despite the opposition to the deal, it ended the main feuding in the bankruptcy.

“I’m very happy and pleased the parties reached the accord,” said Judge Christopher Sontchi at Tuesday’s hearing.

Molycorp’s value swelled in 2011 with a commodities boom and export restrictions on rare earths by China, the world’s leading producer of the elements used in smartphones and automobiles.

However, a global economic slowdown and China’s easing of export restrictions sent prices for rare earths tumbling. Molycorp filed for bankruptcy in June.

The unsecured creditors had accused Oaktree of using its position as lender to place an “exorbitantly expensive noose around Molycorp Group’s neck” and seize control once the miner had been pushed into bankruptcy.

The creditors focused their litigation on an Oaktree loan extended to Molycorp just 10 months before the miner filed for bankruptcy. The investment firm provided $198.7 million, yet the terms of the loan allowed it to claim repayment for $373.8 million, according to court documents.

Under the settlement, if Molycorp reorganizes, Oaktree Capital Management will own 92.5 percent of the company while junior creditors will own the rest. If Molycorp is sold, Oaktree will receive 92.5 percent of the proceeds, up to a maximum of $513.8 million, with the remainder going to junior creditors. (Reporting by Tom Hals in Wilmington, Delaware; editing by Chris Reese and Chizu Nomiyama)

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