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 Judge Christopher Sontchi agreed with the objection by an affiliate
of Oaktree Capital Management that Molycorp could not justify its
need for the money, which would deepen the company's insolvency.
The company will discuss with its creditors how to structure the
loan and will return to court on Thursday at 10 a.m., according to
Sontchi's chambers.
Molycorp, which filed for bankruptcy on Thursday, sought the money
for its operations and to signal to customers and employees that the
company would meet its commitments. Molycorp was seeking the money
on an interim basis and had planned to return to court to seek
approval to borrow up to $225 million.
Oaktree, which had loaned the company about $250 million in
September, argued Molycorp was essentially two businesses, a
profitable developer and distributor known as Neo and the
unprofitable Mountain Pass mining operation in California.
Oaktree's loans are guaranteed by the Neo business. It objected to
the additional borrowing, arguing it was burdening the profitable
business with unnecessary debt to finance the development of
Mountain Pass.
Molycorp's chief financial officer, Michael Doolan, testified that
the Neo business could survive without the bankruptcy loan. He also
said Mountain Pass provided less than 30 percent of Neo's raw
material and acknowledged the board considered closing the mine.
"Neo would be wounded, no question," he said, speculating on the
impact of not getting the loan. But "it would not be a fatal blow in
and of itself," he added.
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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.
In 2012, the company bet on vertical integration and acquired
Toronto-based Neo Material Technologies Inc, a leading processor and
distributor of rare earth products.
The Mountain Pass side of the business had issued $650 million in
senior secured notes, and the investors holding those notes had
committed to providing the $225 million bankruptcy loan.
Molycorp plans to swap ownership of the company to the secured
bondholders in return for their debt.
In the past year, a slowdown in China's economy and slumping
commodity prices pushed many mining companies into bankruptcy,
including Allied Nevada Gold, iron ore producer Magnetation and
Patriot Coal Co.
(Reporting by Tom Hals in Wilmington, Delaware; Editing by Leslie
Adler and Chris Reese)
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