Oaktree takes over successor of Resource Capital-backed Molycorp

Oaktree Capital Management has emerged with a controlling stake in Neo Performance Materials, the successor that resulted from the bankruptcy of Molycorp Inc, a once high-flying mining company formerly backed by Resource Capital Funds.

It’s unclear exactly how much Oaktree paid for Molycorp, but the company carried $1.7 billion in debt when it filed for Chapter 11 bankruptcy in June 2015.

Oaktree provided $22 million in interim debtor-in-possession financing in July 2015 and then a net $130 million in DIP financing later that month. The reorganization plan called for the discharge of more than $700 million in unsecured Molycorp notes. Holders of the debtors’ $650 million in 10 percent senior secured notes agreed to a debt exchange in return for a majority equity stake in the reorganized Molycorp, a statement says.

Also, Oaktree provided $400 million in financing to Molycorp in 2014. Apollo Global Management paid $9 million for a portion of Molycorp’s debt at around the same time, Bloomberg reported.

A spokesman for Neo Performance Materials declined to comment. Spokesmen for Oaktree didn’t comment.

Brook Hinchman, senior vice president of Oaktree, said Neo Performance Materials emerged with a strong balance sheet and “excellent liquidity profile” that “positions it extremely well to execute on the go-forward business plan,” according to a prepared statement. Hinchman joined Oaktree in 2010 after working in the merchant-banking unit of Goldman Sachs, his profile on the firm’s website says.

Hinchman is on the board of Neo Performance Materials, along with Edgar Lee, managing director and portfolio manager at Oaktree’s Strategic Credit unit, and Emily Stephens, managing director.

Based in Toronto, Neo Performance Materials produces and processes rare earth and zirconium-based engineered materials; magnetic powders and rare metals. Molycorp acquired Neo Material Technologies Inc for about $1.3 billion in 2012.

Resource Capital Funds and Pegasus Capital Advisors, along with commodities trader Traxys Group and Goldman Sachs, in 2008 paid $80 million to buy Molycorp, formerly a unit of Chevron.

The company was taken public in 2009 at $12 a share. The stock jumped to about $75 in 2011 after China threatened to stop exporting rare-earth materials to the U.S. At that time, Molycorp found itself as operator of the U.S.’s only source of some rare-earth minerals, the Mountain Pass mine in California. Molycorp reportedly spent $1.5 billion on the mine, only to see rare-earth prices fall. In 2015, the company shut it down.

Mountain Pass mine remains in bankruptcy and is not part of Neo Performance Materials. Oaktree owns an interest in Secure Natural Resources, which holds the mineral rights to Mountain Pass mine.

In August 2014, Molycorp filed to sell as many as 23.8 million common shares in a shelf offering. Of that total, Resource Capital Funds would sell as many as 12.3 million shares. The firm’s stake in Molycorp after the shelf offering amounted to 1.8 percent, or 4.4 million shares, according to a filing. Resource Capital Fund IV LP and Resource Capital Fund V LP were listed as selling stockholders.

Resource Capital Funds raised $1 billion for the vintage 2009 Resource Capital Fund V. The fund generated an IRR of negative 14.4 percent as of May 31, 2015, for University of Texas Investment Management Co, the pension fund’s data shows. Resource Capital Fund IV drew in $527 million in commitments in 2006. In its latest fund, Resource Capital raised $2 billion for Fund VI in 2013.

Denver-based Resource Capital Funds does not own a stake in Neo Performance Materials, according to a source.

Monica Bonar, senior director for U.S. corporate finance at Fitch Ratings, said she couldn’t comment directly on Molycorp, but the debt-research firm forecasts a bias toward strengthening commodity prices this year after stimulus moves by China were put into place.

The debt market for the mining sector took a blow early in 2016 at the same time that oil prices cratered but has since rebounded somewhat.

“You really did see investors leave the sector,” she said. “The demand side for assets was abysmal.”

Action Item: Neo Performance Materials, www.neomaterials.com.

A front-end loader is used to move material inside the open pit at Molycorp’s Mountain Pass Rare Earth facility in Mountain Pass, California, on June 29, 2015. Photo courtesy Reuters/David Becker