Largest Rare Earth Miner in the US Files for Bankruptcy

Molycorp, Inc. which is the largest rare Earth miner in the US, is filing for bankruptcy, as they have recently announced plans to file for Chapter 11 to reduce their $1.7 billion debt, according to a WSJ report.

The filing is significant because Molycorp Inc. is the only source of rare earth metals in North America and one of the largest global processors of mineral elements used in mobile devices.

Molycorp spirals into debt

As of June 1st, Molycorp was delinquent on a $32.5 million interest payment for $650 million in notes to senior bondholders, reported Seeking Alpha. In a statement released by the company last week, Molycorp has entered into a 30-day grace period for defaulting on the interest payment for its 10 percent secured notes due in 2020. As a result, the company has not violated any other terms of its debt provisions, but with a reported cash burn of $40 million, the company’s financial future is in serious doubt, noted a Seeking Alpha report.

The proposed plan to reduce the debt load

Molycorp’s plan is designed to secure fresh capital in order to continue operations for the next calendar year, reported Bloomberg Business. However, current shareholders are concerned because an influx of new cash would dilute shares in the company and drive down market value.

To address these concerns, Molycorp’s proposal involves offering equity in the company to senior bondholders in exchange for the amount of the debt, the report explained. The plan focuses on reducing the debt amount and interest costs because the company expects the value of its securities to plummet after filing Chapter 11. In addition to ownership stakes, Molycorp will request a supplementary loan from these senior bondholders to infuse capital while maintaining stock value.

The fallout

The debt restructuring proposal is structured to avoid defaulting on these loans, which would effectively lead the company into closure. However, the cash infusion only aims to keep the company operational till 4Q of this year, meaning that operations may come to a halt without high ROI by year-end, noted a Bidness ETC report. Molycorp’s debt repayment is scheduled for 2019, but failure to complete the initial debt obligation will force the company to pay back a $400 million credit line on expedited reimbursement schedules.

Ultimately, due to Molycorp’s poor financial standing after entering into the 30-day grace period, the stock was downgraded to Caa2 because the company has become a high credit risk, according to Moody’s. Currently, Molycorp’s stock is priced at 80 cents, representing an 83 percent decline since June 2014.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.