## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N os. 08

- 2736 , 08

- 2751 , 08

- 2752 , 08

- 2824 & 08

- 2905 U NI T ED A IR L INE S, I NC ., P la intif f-A pp ellee, Cros s -Appe l l ant, v.

R EGIONAL A IRPO RTS I MPR OVE MEN T C OR PORAT I ON A ND UMB B ANK, N .A ., D efend a nts-A pp ella nts, C ross-A pp ellees

.
A pp ealsfr o m the United S t ates Di strictC our t fo r the N o rthernDi stricto f Illino is, Eas tern Div isi on. No s. 07 C 5888 &5890

—H arry D . L einenw eber, Ju dge .
A RG UE D A PRI L 16, 2009

— D ECI DE D M AY 5, 2009

Befo re E A S T E RB R OO K, Chi e f Judg e , an d B AUERa nd M A NI ON, C ircu it Judges . E A S T E RB R OO K, Chi e

f Judg e . W he n U nited A ir L ines left b a n k r u p t c y, i t s p l a n o fr e o r g a n i z a t i o n ma r k e d s o me i ssues f orl ate r re sol uti on. One w as how m uch U ni ted2 N os. 08

- 2736, 08

- 2751 , 08

- 2752, 08

- 2824& 08

- 2905 owes to l enders that put up th e m oney f ori m prove m en ts at se ve r al ai r te r m i na l s. W e co nc l ude d th at the tran sact ion sup p lyi ng the fun d s us ed to i m p rove U nited ’s space at Los An gel es I nter nati onalA i rpor t s hou l d be tr eat ed as a s ecure d l oan ra therthan as a l eas e. U n i ted A irlines, Inc. v. U .S. B a nkN .A
. , 447 F.3d 504 (7th C ir. 2006), ap p lyi ng the ap p roach of U ni t e d Air l i ne s , Inc . v. H SBC B ank USA, N. A. , 41 6 F
. 3d 609 ( 7th Cir
. 2005 )
. A s a r esul t, U ni ted m ust pay the l enders the fullval ue o fthe ass ets thatse rv e a s s e c u r i t y ; a n y e x c e s s i s u n s e c u r e d d e b t
. 1 1 U
. S
. C. §§ 506( a) , 11 29(b) ( 2) ( A )
. U ni te d’s pla n ofr eor gani zati on provi des thatthe val uati on deci si on m ay be m ade after confi rm ati on, and that U ni ted the n w i l l pay acco rdi ngl y. Val uati on would b e str ai ghtf or w ar d i fther e were a m ar k etf o r i m pr o ve d s pace a t ai r po r ts
. An a ss et ’ s va l ue depe nds o n th e pr i ce th at co ul d be ag r eed by w i l l i ng buyer s a nd se l l er s neg oti at in g fo r a r epl acem ent. S ee A ssoc ia tes C o m m ercia l C o rp. v. R a sh , 52 0 U. S
. 95 3 ( 19 97 )
. But ther e i s no l i quid m ar ketf or t h i s a sse t. Ever y a i rpor t has differ ent for ces ofsup plyand d em and, and U ni ted l eas es r a th e r th a n o wn s s p a c e a ta i r po r t s . A l th o u g h s o me car ri er s m ay subl eas e space to othe rs , the re cor d does no t conta i n e vid en ce o fthe pri ces at w hi ch thes e t ra nsacti o ns o cc ur . S o the b an k r upt cy cou rtde ci ded to v al ue th e coll ateral by a discou nt ed -cash -flow a na lysi s. I t d eterm ined that 345,167 sq ua re feet of i m p roved sp ace are su bj ec t to the s ec ur i tya g r ee m en t an d se t a n a nnua l v al ue of $17 pe r sq ua re foot for th at sp ace as of 2004
. Th e cou rt pr oj ec te d i nc r eases in the se r en ts a t a r at e r efl ec ting expe ri ence i n the busi ness, added up the i m pu ted r en ta l s th r o ug h 2 02 1 ( when th e loan co m es due ) , a ndN os. 08

- 2736, 08

- 2751 , 08

- 2752, 08

- 2824& 08

- 2905 3 disc ounted the re sul t at 10% perannum . That pro du ced a pre sent val ue o fr oughl y $ 35 m i l l i on f orthe len d ers’ secur i ty. U ni ted o w es the l enders ro ughl y $ 60 m i l l i on, so $25 m i l l i on was tr eat ed as unsecured deb t an d w ri tte n do wn ac co r ding to the pl ano fr eo r g an i za ti o n. The d ist ric t j u d ge a ffirm ed . 2 00 8 U .S. D ist . L EXIS48 73 8 (N .D . I ll. Jun e 25, 2008 ). Bo ththe l en der( th e Re g i o na l Airports I m pr o ve m en t C orp . or RAIC ) a nd the Tr us te e ( UM B Ba nk ) f o r th e i nv e s t o r s wh o p u t u p RAIC ’ s m oney, chal l enge eve ryst ep ofthe bankr up tcy cour t’ s pro cedure. ( W e r eferto RAIC an d the T rus tee collectively as “th e L en d ers.”) T he Le nd ers al so conte nd thattheydi d not r ecei ve appropri ate “a dequate p ro tect i on” paym ents und er11 U
. S. C. §363 to co m pen sa te f o r th e d i m i nut i o n i n the c o l l at er al ’ s va l ue w hi l e the l i tiga ti on co nti nued

. That a rgum ent i s a nonsta rt er, bec ause it confl i cts w i th the co nfi rm ed pla n ofr eor gani zati on. W ha tever ri ghts the Lenders m ay ha ve ha d unde r § 36 3 ha d t o b e l i qui d ated as pa r t o fthe pla n. A l l thatm att er s no w is w hetherthe bankr up tcy cour t h as i m ple m ented the pl an co rr ectl y. W e ca n be si m i l ar l y b ri efi n deal i ng with the Len ders’ co ntenti on that the c ol l ate ra l i ncl ud es al l o fT er m i nal s 7and 8, wh i ch Uni te d us es . The b an k r uptcyc o ur t’ s ne g at i ve fi ndi ng i s no t cl ear l y e rr oneo us. Two que st i o ns r emai n: what i s th e an nua l r en ta l r at e, a nd w hat i s the appropr i ate di sco unt r ate? The bank ruptcy cour t use d as the r entalr ate the p ric e that Los A ngel es A irp or t ch ar ge s U n ite d (an d ot h er air lin es ) for sp a c e in th e te r m i na l s. I t deriv ed a di sc o untr at e bya ddi ngthe4 N os. 08

- 2736, 08

- 2751 , 08

- 2752, 08

- 2824& 08

- 2905 Len der s’ pr o po se d r at e to U ni te d’ s pr o po se d r at e, a nd d i v i d i n g b y t wo . Ne i th e r o f th e s e d e c i s i o n s i s s o u n d. We sta rtwith the i m pli ci t a nnual re ntalpersquar e f oo t. U ni ted co ntends, and the bankr up tcy j u dge f ound, that $17 per square f oo t perye aris t h e m ar ketr ate f or ter m i nal space i n Los An gel es because that is w h at a wi l li ng s el l er( th e ai r po r t) c ha r g es t o wi l l i ngb uy er s ( th e ai rl i nes)
. The Lende rs r es p ond that thi s i s no t a “m ar ket ” ra te bu t re flec ts a d isc ou n t t h at th e a irp o rtex te n d ed in th e y ea rs be for e t h e 1 98 4 O lym p ics to p e r su ad e a ir c a r r i e r s t o ma k e i n v e s t me n t s , a nd th a tth e a i r p o r tp r o mi sed to co ntin u e ov erthe l ong ter m by ty i ng r ental s t o i ts cos ts ra therthan perm itti ng the m to r i se w i th d em an d f or ai r travel and te rm inal spac e. A s the Le nd ers se e th in gs , L os A n ge les In te rn at ion al A irp or t c o u ld ch a r g e mu c h mo r e th a n $ 1 7 p e r s q u a r e f o o t b e c a us e th e de man d fo r a i r t r a v e l ( a n d th u s f o r g a t e s ) h a s g o n e u p, w h ile the a i rpor t has bee n unabl e t o expand

. Thi s i s a se ller’s m ar ket

— o r c o ul d b e , i fthe a i r po r twe r e a l l o wed b y i ts contr acts to ta ke advantage o fthe ai r car ri er s’ demand

— and the Lenders saythatth ey, as se cured cred itors, are entitled to a h igher p rice even ifth e airport autho r i t y ha s di s a b l e d i t s e l f f r o m inc r e a s i ng r e nt s t o m ar ketl eve l s. A bank ruptcy j ud ge m i ght ha ve accepte d the Lenders’ ar gum ent o n thi s s cor e, but thi s j ud ge did notco m m i t cl ear er ro r ( orabuse hi s di scr etio n) i n prefer ri ng the ev i dence ofactual tr ansact i on pri ces ove r an ar gum en t b ase d on bel i ef s about w hat pr i ces coul d h aveb ee n. Re alt r an sa ct i o ns ar e avi talanchori n l i ti gat i on. There i s no “j us t p ric e” f orN os. 08

- 2736, 08

- 2751 , 08

- 2752, 08

- 2824& 08

- 2905 5 any a sse t, and a c ourti s e nti tl ed to r ej ect a n eff or t t o s h o w th at w illing bu ye rs an d se llers are “w ro n g” in val uinga parti cul aras set
. St i l l, i t i s e sse nti alto unde rs ta n d w hat the pri ce o f $ 1 7p e r s q u a r e f o o tr e p r e s e n t s . I ti s a p r i c e f o r u n i mp ro ve d te r m in al s p ac e. A ir ca rrie rs bu ild ou t t er m in als an d g a tes to th eir ow n sp ecifi cation s. T he air p ort pr o m i se d i n the l ea ses not to i nc r ea se r en t to r efl ec t th e val ue o fthe i m prove m ents m ade by the a i r car ri er s. ( N o tenant i s w illi ng to pay tw i ce forthe sam e i m prove m ents

— once to have them bui l t, and a s econd ti m e t o th e l an d lord th r o ug h r en t r efl ec tingthe v al ue o fthe i m prove d space. ) S o the a nnual re nt r efl ects t h e value of basi c space i n the Los A ngel es ter m i nal s. Yet the Lenders ’ se cur i tyi s i n the im p rov ed space . A pri ce foruni m prove d spa ce do es notmeas ur e th e va l ue o fthe c o l l at er al

. I fthe Len derf o r ec l o se d a nd tooko ve r the s pac e, i t co ul d r en t th e ga tes to U ni ted o r som e o therai rl i ne atm or e than $ 1 7 a s qu a r e f oo t

— at perhaps f our ti m es that m uch, to go b y p ric es atth e a irp or t’s on e t er m in al t h at lea se s fu lly b u ilt-o u t g at es . (M or e o n th is b elo w .) I fU ni ted had l eas ed bar e gr ou n d and bui l t a te rm i nal th ere fr o m s c r atch , no one w ou ld say th at th e term inal’s va l ue i s m ea su r ed bythe ren ta l pr i ce f o r the unde r l y i ng l and. That, however, i s fund am ental l y what the ban krupt c y c ou rtdi d here

. The Lenders have been tol d that thei r col l ate ra l i s w or th no m or e than i fU ni ted had not mad e the i mpr o v e men t s . I fthe t e r mi na l we r e u ni mpr o v e d, i t wo ul d h a v e a c a pi t a l v a l ue o f$ 3 5 mi l l i o n ( o n the b ankruptcy cour t’ s m etho do log y) ; afterU ni ted bo rr owed6 N os. 08

- 2736, 08

- 2751 , 08

- 2752, 08

- 2824& 08

- 2905 $75 m i l l i on t o m ake i m p ro ve m ents, the i m prove d space w as sti l l val ued a t $35 m i l l i on. ( The or i gi nal loa n was $75 m i l l i o n; U nited r epa i d abo ut$ 15 mil l i o n b efo r e th e b an kr u p tc y b eg an .) B u t, if U n i t e d w a s ra tio n al, it w ou ld n oth av e p u t in $7 5 m illion of im p ro ve m en ts u n les s it i ncre ase d the s pace’ s v al ue by atl eas t that m uch

— m ak i ng i t worth $11 0 m i l l i on o r m or e. A ny val uati on m etho d that tr eat s i m prove m ents a s wo r thl e s s c a n’ t be appropr i ate
. U ni ted has tw o re sponses . One i s that the i m prove m ents w er e m ade m or e than a deca de ago , and that l i ke o th erc api ta l i nv es tment s th eywea r dow n. Tha t’ s tr ue enough; the i m prove d ter m i nal m ay be w or th l ess than $1 10 m illion to d ay . B u t t h e im p ro ve m en ts su re ly ha ve no t depr ec i at ed to a v alue o fz er o . Uni te d’ s se co nd re sponse i s tha t it p ays $17a square f oo t no t o nl y for th e spa ce s ubj ec t to the Le nde r s’ s ec ur i tyi nt er es t, b ut al so f or othe r space that U ni ted occupi es at the a irp or t. This m ust m ean that the $1 7 i s the v al ue o fi m prove d spac e. Tha t unde r st an di nga ss um es , ho wev er, tha t th e othe r space w as bui l t o ut atthe ai rp or t’ s e xpense r ather than U ni ted’ s. A s we re ad the r eco rd, however, U ni ted i m prove d all o fthe space i t o ccu p i es

— no t al l wi ththe m o ne y fu r n i s h e d b y th e s e L e n d e r s , t o b e s u r e , b u tt he i m prove m ents w er e a t Un i ted’ s e xpense. Otherai r car ri er s, to o , ha ve pa i d f o r i m pr o ve m en ts
. I fthi s i s so , th en the $17 re nt persq u ar e f oo t in 200 4 i s f oruni m prove d space, as the l eas es prom i sed carr ier s. ( U ni ted has not ar gued th atthe a i r po r t i s vi o l at i ngi ts c o nt r ac tu alc o m m i tment t o s e tr e nt s ba s e d o n th e v a l u e o fb a r e r a th e r th a n i mp ro ve d te rm in als .)N os. 08

- 2736, 08

- 2751 , 08

- 2752, 08

- 2824& 08

- 2905 7 One tel l i ng bi t o fev i dence thatthe $17 re ntalr efl ects b a s i c r a the r tha n i mpr o v e d s pa c e i s the pr i c e c ha r g ed by a c on so rt iu m of airlin es th a t op er at es th e a irp or t’s T er m in al 2 , w h ich th e p ar tie s c all LA X 2
. T h e c o n s o r t i u m’ s me mbers u se som e of th e term inal’s 11 gate s and rent oth ers at a p r ic e t h a t in 2004 w as $63 p er squ are foot per year. The bankr up tcy j u dge and dis tr i ct j ud ge thought that th e Tr us te e, wer e i t to t ak e o ve r U nited ’s g at es a nd r en t them o ut, co uld notge t a s m uch. They g ave thi s e xplanati o n: [ The Truste e’ s] exper t co ncl ud ed that th e m ar ket re ntal est abl i shed by LA X 2 w as $63 p er squ are foot

. The Ba nk r upt cyCo ur t di d no t ac ce pt th e e xp e r t ’ s c o nc l us i o n, a nd f o un d tha t“ i twa s i na pp ro p ria te to use the netr eve nues as a m eas ure of m ar ket re nt” and that ther e w as n o evi dence subm i tte d ofw h at internalr ate o fr etur n a hy poth et ica l LA X 2 op erat o r w ou ld req uire. T he Cou rt als o fou n d th at th er e w er e s ign ifica n t g ap s id en tifyi ng proj ecte d rev enues a nd ex p en ses wh i ch w oul d m ake a square f oo tag e r entaldeter m i nati on hi ghl y s peculativ e. W hi l e the Courtag re es wi ththe Ba nk r upt cyCo ur t o n the se c r i ti ci sms, the Court fi nd s that the m ost persuas i ve re ason f or disc ounti ng the LA X 2 m od el a s a co m p ar ab le is scal i ng: the [ col l ate ra l ] f aci l i ties i ncl ud e a t m ost 7 g ate s o ut o ft h e 20 gates i n U ni ted’ s t er m i nal fac ilitie s (U n ite d cla im s itis o n ly 4 ga te s). T h e ra tio o f c o s t s t o r e v e n u e i n o p e r a t i n g a fe w g a t es i n a te rm in al w ou ld n otbe th e s am e a s t h e ra tio in oper at i ng an enti re te rm i nal as i s the cas e with8 N os. 08

- 2736, 08

- 2751 , 08

- 2752, 08

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- 2905
LA X 2. W ou ld a bi dd ero n the

. . . f aci l i ti es up on whi c h a r e l o c a t e d e i the r 4 g a t e s o uto f2 0 ( Uni t e d) o r 7o uto f2 0 ( [ th e Len der s] ) pa y the s ame a m o unt as a b i dderwho woul d a cqui r e 20 g at es i fthe enti re U n i ted l eas ehol d w as f orsa l e? The answ er i s o bvi ousl y no . 20 08 U .S. D ist . L EX IS4 87 38 at * 9–* 10. N ei therthe bankr upt cy j udg e no r the di st r i ctj udg e ex pl aine d why “the ra ti o ofco sts to r eve nue” o r an o w ner’ s t ar geti nter nal r ate ofr etur n affects an a sse t’ s m ar ketpri ce. A n op erato r (air lin e o r T ru s t e e) w ou ld n otch ar ge les s t h an av oid ab le co s t ; i t c o u l d d o b e t t e r b y g i v i n g th e s p a c e b a ck t o t he a i r po r ta utho r i t y . Bu th o w muc h m or e itc a n g e tde pe nd s not on som e rat i o but on the dem and fo r the s pace and on th e price th at its co m p etitors cha rge. I f, as the L en d ers co nt en d, a l l g at es a t Lo s Ange l es ar e i n us e an d b ui l di ng mor e i s a p r o t r a cted end e a v o r, the n the p r i c e de pe nd s en tir ely on w h at a i r l i n es w ill pa y: cu rre n t o w n er s w ill re ce i ve a n e co no m i c r en t. ( An ec o no m i c r en t i s th e po rt i on o fthe pri ce, i n exces s o fthe sel l er ’ s co st, that a g oo d fetches bec ause i ts supp l y i s inel ast i c, a goo d d es c rip tio n of ga te s a t L os A n ge les Int er n at ion al A irp or t.) A po te nt i al to co m m an d an ec o no m i c r en t i s par t o fthe va lu e o f th e L en d er s’ c olla te ra l. N o w i t m ayb e th ati t would b e m o r e co st l y f o r the Truste e ( afterfor ecl osur e) to m anage four, or seve n, ga tes i n U ni ted’ s t er m i nal s th an it i s f orthe conso rt i um to m anage al l 11 ga tes at LA X 2. I fso , e ve n tho ugh the pri ce th at a i r car ri er s would pay i s a pt to be i n the sam e r ange, th e n et rea lize d b y t h e o w n er m igh t b e s m alle r. T h isN os. 08

- 2736, 08

- 2751 , 08

- 2752, 08

- 2824& 08

- 2905 9 po ss ibi l i ty, ho wev er, do es no t j us ti fy di sr eg ar di ngthe f act tha t a i r c a r r i e r s wi l l i ng l y pa y $ 6 3 pe r s qu a r e f oo t for sp ac e a t L o s A n ge les Int er n at ion al A irp or t, th e o n ly est i m ate i n the re cor d ofi m prov ed s pace’ s g oi ng pri ce. Tha t th e Tr us te e’ s net m ay be s o m ewha t l es s th anthe LA X 2 conso rt i um ’ s har dlyj usti fi es usi ng the pri ce forun i m prove d space i nstea d. N or c an the $63 fi gure be thro w n out t h e w i nd ow because the LA X 2 co ns o r ti um provi des so m e s er vi ces to i ts custo m er s that the Tr ustee , as oper ato r ofU ni ted’ s sp ac e, m i ght no t pr ovi de. The bank

ruptcy cour t di d not a tte m pt to deter m i ne ho w m u ch of the $ 63 i s a ttr ibutabl e t o these se rv i c es , a n d i t i s m ost unli kel y that they a ccount f orhal fo fthe pri ce. I t doe s n ot m att erwh etherthe Truste e co uld l eas e U ni ted’ s gat es f or $63 a f oo t or onl y $40. A n y potenti al re ntalpri ce hig h er than $30 w oul d m ake the col l ate ra l w or th atlea st$6 0 m illi o n , a n d th u s m ak e t h e loa n fu lly secur ed, ev en with th e 1 0% di sco unt ra te that the b ankr up t c y c o u r ts e l e c t e d

. T h e d a t a fr o m LA X 2 s how that U ni ted’ s s pace co uld be l eas ed to o therai r car ri er s f or at l eas t $ 30 a f oo t. The Lend er s there f or e a re enti tl ed to col l ect 100¢ o n the dol l ar, pl us i nter est
. W ha ti s mo r e , we c o nc l ud e tha tthe 1 0 % di s c o un tr a te i s to o hi g h. The Len der s’ expe r t ch o se 8 % b ec au se i t i s th e rate of r etu rn th at L os A ng eles Int erna tio n a l A irport i tse l fpays on ge nera l r eve nue bonds, wh i ch ar e unsecured. U ni ted’ s expert chose 12% as the ra te ofr etur n that d eb t in ve st or s in th e a ir tr an sp or ta tio n b u s in es s w ou ld dem and, gi ven the r i sks of that busi ness, w hi ch i s v ol ati l e. The b a n k r u p t c y j u d g e a d d e d th e t wo e s t i ma t e s a nd di v i de d b y t wo . An a rb i t r a t o r mi g htc ho o s e s uc h a me tho d,10 N os. 08

- 2736, 08

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- 2905

an d pe r ha ps a j ur y woul d do so b eh in d c l o se d do o r s, b ut a j ud ge sh o ul d c ho o se the r ightdi sco unt ra te ra therthan sp li t the differen ce be t w een the p arties. W ha t ifU nited ’s e s t i ma t e h a d b e e n 2 0 %, o r th e L e n d e r s ’ e s t i ma t e 3 %? The ri sks o fthe ai r ter m i nal busi ness depe n d in p ar t o n t h e f a t e o f a i r c a r r i e r s . Wh e n E a s t e r n A i r l i n e s f a i l e d , t wo en tire term inals at H artsfiel d A irport in A t lan ta w ere shutter ed, and the ai rpor t di d not r etu rn t o fullo perati ons f oral m osta gener ati on. B u t f ora l ong ti m e Los A ngel es I nter natio nal A i rpor t has had l ess capaci ty than th e ai r l i ne s pr efer . Ga te s ar e ful l y us ed; t ak eo ffa nd l an di ngs l o ts a re lim i te d. As f ara s th i s r ec o r d s ho ws, no gat es at the a i rpor t a re i dle to day

— des pi te the fl uctua ting fortun es of ai r carriers

— an d no ne ha s be eni dl e f o r a l o ng tim e. A irl ines h ave b e en clam oring for gates
. Th e airport i s bui l ding a n ew 10- gat e t er m i nal, the fi rs t a dd i ti on si nce the ea rl y 1 980s , that i s proj ecte d t o be re ady i n 201 2. That i m pli es that bei ng the pro pri eto r ofte rm i nal space in t his ai rpor t i s no t parti cul ar l y r i sky, and that secur ed d ebt i nv estors in U nited ’s spa ce w ou ld n ot d em an d m ore than 8% . R ea l pri ces ar e m uch m or e info rm ati ve than law yers’ talk. I t w ou ld be good to k n o w w ha t investors wer e wi l l i ngto acc epti n 20 04 ( o r t o day ) o n s ec ur ed l o an s to L os A ng eles Int erna tional A irport, or i ts air carriers borrow ing to i m p rove th eir sp ace, but i t is un ne cess ary to tra c k d ow n th at d et ail. T h e fa c t t h at th e a irp or t is o per at i nga t ca pac i ty, a nd c anra i se mone y a t 8% wi th

o ut g i v i ng s e c ur i t y, i s a l l we ne e d t o k no w t o con c l ud e th a tth e d i s c o u n tr a t e c a n n o te x c e e d 8 %. I n a di s c o un t e d- c a s h- fl o w a na l y s i s , the di s c o un tr a te has a pow er ful effect on the pre sent val ue. S ee I nter na-N os. 08

- 2736, 08

- 2751 , 08

- 2752, 08

- 2824& 08

- 2905 11 ti onalFe derat i on o fA ccountants , Proj e ctApprais al Us i ng D i s co unt e d Cas h F l ow ( 20 07 ) ; Aswath Da m o dar an, Inv es tm e ntVal uat i on: Too l s an d Te ch ni q ue s f orD e t e r m i ni ng t he V a lue o f A ny A sset( 19 96 )
. A l um p s um o f$146 m i l l i o n, pay ab le in 202 1, i s worth $35 m i l l i on i n 200 6 when d i scounted to pre sent val ue at10 % perannu m . (The b ankr upt cyc o urt’ s ac tu alc al cul at i o n i s m o r e co m pl ex , b e c a us e th e c o l l a t e r a l w o u l d h a v e b e e n r e n t e d o v e r t i me r athe r tha n s o l d f o r a l um p s um , b utwe sim p l i fy . ) The sa m e $1 46 mil l i o n i n 2 02 1 woul d ha ve a pr es en t val ue o f$ 46 mil l i o n i n 2 00 6 atan 8% di sc o untr at e, a nd $2 7 m i l l i o n a t 12 %

. T hu s s i m pl y c ha ng i ngthe di sc o unt rate from 10% to 8% w ou ld m ean that an ex tra $11 m i l l i on o fthe l oan i s s ecure d, even h old i ng the r ental r a t e a t$ 1 7p e r s q u a r e f o o t
. Wi th th e d i s c o u n tr a t e a t8 %, a r entalo fr oughl y $ 23 per square f oo t i s en ough t o m ake the Lend er s full y secur ed. Because i m prov ed space i n Term i nal 2 fetche s alm ostthr ee ti m es the pr i ce ne eded t o ma k e the s e l o a ns a g a i ns ts pa c e a tT e r mi na l s 7a nd 8 full y s ecure d, the Lenders ar e e nti tl ed to a fullr eco ver y. The j ud gm ent i s rev ersed, and the case i s r em anded f o r fur th erpr o ce eding s co ns i st en t wi ththi s o pi ni o n.

5- 5- 09