Molycorp (MCP) announced the successful close of its $400 million financing arrangement with Howard Marks’ Oaktree Capital Management on Sept. 11. The deal gives Molycorp a lifeline that has created a boom or bust scenario as rare earth metal company works to increase production at its Mountain Pass facility.
Without the financing deal, Molycorp was on track to run out of cash by the end of the year. $156.4 million in cash was reported on the balance sheet ending June 30, 2014, operating cash flow was $-72.5 million and free cash flow was $-87.4 million for the second quarter. Oaktree has funded the company with $250 million and entered into a sale leaseback transaction where $139.833 million was paid for equipment including, but not limited to, parts of Molycorp’s natural gas powered co-generation plant, chloralkali facility and water treatment plant. The remaining $150 million in the deal will be made available with the achievement of consolidated adjusted EBIDTA of at least $20 million per quarter for two consecutive quarters, and a production volume from the Mountain Pass facility of at least 4,000 metric tons per quarter for two consecutive quarters by April 30, 2016. The deal lines up perfectly with the $230 million bond principal payment that is due on June 15, 2016. If the guidelines cannot be met, then a default will likely occur on the June 2016 bonds. The bonds are currently trading at a price of 68.01 with a yield of 27.855 percent. Continue Reading »