After nearly two weeks of speculation, Waterford-based Momentive Performance Materials Inc. filed for Chapter 11 bankruptcy protection on Sunday.
The silicone and quartz producer was facing an unsustainable balance sheet and diminishing liquidity, and earlier this month reported that it was considering bankruptcy as the “most expeditious manner” of reorganizing its capital structure and reducing its debt.
The company had nearly $2.7 billion in assets and more than $4.17 billion in debts at the end of 2013, according to the filing in U.S. Bankruptcy Court in the Southern District of New York. New York City law firm Willkie Farr & Gallagher will represent the company in the case.
Momentive Performance Materials started 70 years ago as part of General Electric Co.’s advanced materials unit. In 2006, Apollo Global Management bought the company from GE. In addition to its Waterford plant, Momentive produces silicone and silicone derivatives at 21 other sites around the world that are used in everything from the production of tires and hair care products to foam mattresses and adhesive labels.
The trouble began around 2011, according to Momentive CFO and Executive Vice President William H. Carter.
In the Sunday filing, he states: “Since 2011, the company has experienced significant deterioration in its financial performance, primarily attributable to a fundamental shift in industry dynamics, including industry-wide overcapacity, causing severe price pressure for the company’s basic products, and the commoditization of lower-end specialty products, which have collectively given rise to decreased profit margins industry-wide.”
Momentive’s competitors also were affected, but Momentive had a high net leverage that increasingly cut liquidity and the ability to properly fund operations. Since 2011, Momentive has paid a cumulative $739 million in cash interest payments on funded indebtedness.
On April 1, Momentive filed a report to the U.S. Securities and Exchange Commission that said it couldn’t file its 2013 annual report and needed more time to analyze its financial statements as there was “substantial doubt” over its ability to “continue as a going concern” for the next 12 months.
Since then, the company has maintained that bankruptcy and restructuring will not have an adverse effect on its ordinary day-to-day operations. A company spokesman told The Daily Gazette last week that any action should not affect staffing levels, including the more than 1,000 people employed at its Waterford plant.
Momentive and nearly a dozen subsidiaries filed the petition Sunday for bankruptcy protection. The company’s lawyers filed a motion for joint administration, which would consolidate the cases for efficiency’s sake. U.S. Bankruptcy Judge Robert D. Drain approved the motion, which should cut down on costs and procedural hurdles.
The bankruptcy proceedings will not affect Momentive Specialty Chemicals Inc., a subsidiary also owned by Apollo.