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Dennis F. Dunne (admitted pro hac vice) 

Samuel A. Khalil (admitted pro hac vice) 

MILBANK LLP 

55 Hudson Yards 

New York, New York 10001-2163 

Telephone: (212) 530-5000 

Facsimile: (212) 530-5219 

and 

Gregory A. Bray (SBN 115367) 

Thomas R. Kreller (SBN 161922) 

MILBANK LLP 

2029 Century Park East, 33rd Floor 

Los Angeles, CA 90067 

Telephone: (424) 386-4000 

Facsimile: (213) 629-5063 

Counsel for the Official Committee 

of Unsecured Creditors

STROOCK & STROOCK & LAVAN 

LLP 

Mark A. Speiser (admitted pro hac vice) 

(mspeiser@stroock.com) 

Kenneth Pasquale (admitted pro hac vice) 

(kpasquale@stroock.com) 

Sherry J. Millman (admitted pro hac vice) 

(smillman@stroock.com) 

Harold A. Olsen (admitted pro hac vice) 

(holsen@stroock.com) 

180 Maiden Lane New York, NY 10038-

4982 

Tel: (212) 806-5400 

Facsimile: (212) 806-6006 

and 

STROOCK & STROOCK & LAVAN 

LLP 

David W. Moon (SBN 197711) 

(dmoon@stroock.com) 

2029 Century Park East 

Los Angeles, CA 90067-3086 

Tel: (310) 556-5800 

Fax: (310) 556-5959 

Counsel for Mizuho Bank, Ltd., in its 

capacity as HoldCo Term Loan 

Administrative Agent

Michael S. Stamer (admitted pro hac vice) 

Ira S. Dizengoff (admitted pro hac vice) 

David H. Botter (admitted pro hac vice) 

Abid Qureshi (admitted pro hac vice) 

AKIN GUMP STRAUSS HAUER & FELD 

LLP 

One Bryant Park 

New York, New York 10036 

Telephone: (212) 872-1000 

Facsimile: (212) 872-1002 

and 

Ashley Vinson Crawford (SBN 257246) 

AKIN GUMP STRAUSS HAUER & FELD 

LLP 

580 California Street 

Suite 1500 

San Francisco, CA 94104 

Telephone: (415) 765-9500 

Facsimile: (415) 765-9501 

Counsel for the Ad Hoc Committee of Senior 

Unsecured Noteholders of Pacific Gas and 

Electric Company 

Andrew I. Silfen (admitted pro hac vice) 

Beth M. Brownstein (admitted pro hac vice) 

ARENT FOX LLP 

1301 Avenue of the Americas, 42nd Floor 

New York, New York 10019 

Telephone: (212) 484-3900 

Facsimile: (212) 484-3990 

and 

Aram Ordubegian (SBN 185142) 

ARENT FOX LLP 

55 Second Street, 21st Floor 

San Francisco, CA 94105 

Telephone: (415) 757-5500 

Facsimile: (415) 757-5501 

Counsel for BOKF, NA, in its capacity as 

Indenture Trustee for the Utility Senior Notes 

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David M. Feldman (admitted pro hac vice) 

Matthew K. Kelsey (admitted pro hac vice) 

GIBSON, DUNN & CRUTCHER LLP 

200 Park Avenue 

New York, NY 10166-0193 

Telephone: (212) 351-4000 

Facsimile: (212) 351-4035 

and 

Michael S. Neumeister (SBN 274220) 

Michelle Choi (SBN 313557) 

GIBSON, DUNN & CRUTCHER LLP 

333 South Grand Avenue 

Los Angeles, CA 90071-3197 

Telephone: (213) 229-7000 

Facsimile: (213) 229-7520 

and 

Matthew D. McGill (pro hac vice) 

 mmcgill@gibsondunn.com 

GIBSON, DUNN & CRUTCHER LLP 

1050 Connecticut Avenue, N.W. 

Washington, DC 20036-5306 

Telephone: 202.955.8500 

Facsimile: 202.467.0539

Counsel for the Ad Hoc Committee of 

Holders of Trade Claims

M. David Minnick (SBN 54148) 

PILLSBURY WINTHROP SHAW 

PITTMAN LLP 

Four Embarcadero Center, 22nd Floor 

San Francisco, CA 94126-5998 

(415) 983-1000 

dminnick@pillsburylaw.com 

and 

Leo T. Crowley (pro hac vice pending) 

PILLSBURY WINTHROP SHAW 

PITTMAN LLP 

31 West 52nd Street 

New York, NY 10019-6131 

(212) 858-1000 

leo.crowley@pillsburylaw.com 

Counsel for Wilmington Trust, National 

Association, in its capacity as Administrative 

Agent for Holdco Revolver

Timothy Graulich (admitted pro hac vice) 

timothy.graulich@davispolk.com 

David Schiff (admitted pro hac vice) 

david.schiff@davispolk.com 

Daniel E. Meyer (pro hac vice application 

pending) 

daniel.meyer@davispolk.com 

DAVIS POLK & WARDWELL LLP 

450 Lexington Avenue 

New York, New York 10017 

Telephone: (212) 450-4000 

Facsimile: (212) 701-5800 

and 

Andrew D. Yaphe (SBN 274172) 

andrew.yaphe@davispolk.com 

DAVIS POLK & WARDWELL LLP 

1600 El Camino Real 

Menlo Park, California 94025 

Telephone: (650) 752-2000 

Facsimile: (650) 752-2111 

Counsel for Citibank N.A., as 

Administrative Agent for the 

Utility Revolving Credit Facility

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UNITED STATES BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA 

SAN FRANCISCO DIVISION 

In re: 

PG&E CORPORATION 

 - and - 

PACIFIC GAS AND ELECTRIC 

COMPANY,

Debtors.

Case No. 19-30088 (DM) 

Chapter 11 

(Lead Case) 

(Jointly Administered) 

CONSOLIDATED OPENING BRIEF OF 

THE OFFICIAL COMMITTEE OF 

UNSECURED CREDITORS AND OTHER 

CREDITOR GROUPS AND 

REPRESENTATIVES REGARDING THE 

APPROPRIATE POSTPETITION 

INTEREST RATE PAYABLE ON 

UNSECURED CLAIMS IN A SOLVENT 

DEBTOR CASE

Date: December 11, 2019 

Time: 10:00 a.m. (Pacific Time) 

Place: United States Bankruptcy Court 

 Courtroom 17, 16th Floor 

 450 Golden Gate Avenue 

 San Francisco, CA 94102 

 Affects PG&E Corporation 

 Affects Pacific Gas and Electric 

Company 

 Affects both Debtors 

* All papers shall be filed in the Lead Case, 

No. 19-30088 (DM). 

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TABLE OF CONTENTS 

Page 

PRELIMINARY STATEMENT .................................................................................................... 1

RELEVANT BACKGROUND ...................................................................................................... 4

ARGUMENT .................................................................................................................................. 5

I. Unsecured Creditors Are Entitled to Postpetition Interest In a Solvent 

Debtor Case. .............................................................................................................. 5

A. Under Section 1124, Unimpaired Unsecured Creditors Are 

Entitled to Retain All of their Legal, Equitable and Contractual 

Rights Under Applicable State Law, Including the Right to 

Collect Interest at Contract or Otherwise Applicable State Law 

Rates. ............................................................................................................... 6

B. Unsecured Creditors in Rejecting Classes Are Entitled to 

Postpetition Interest at Contract or Otherwise Applicable State

Law Rates Under the Fair and Equitable Test of Section 

1129(b). ............................................................................................................ 9

C. Under Section 1129(a)(7), in Contrast, Unsecured Creditors in 

an Impaired Class Are Entitled to Receive Postpetition Interest

at Least at the “Legal Rate” Before Any Distribution May Be 

Made to the Debtor’s Equity Holders. ........................................................... 11

II. In a Solvent Debtor Case, Contract or Other State Law Rates of 

Interest Presumptively Apply to the Payment of Postpetition Interest. .................. 13

A. The General Rule in the Ninth Circuit and Elsewhere Is that 

Contractual Rights to Interest in Solvent Debtor Cases Are 

Presumptively Enforced. ................................................................................ 13

B. In the Absence of a Stated Contract Rate, California Law 

Imposes a Statutory Interest Rate for Contract-Based Claims 

Which Benefits from the Same Presumption in a Solvent Debtor 

Case. ............................................................................................................... 17

III. Neither Ultra Petroleum Nor PPI Enterprises Compels a Different

Result. ...................................................................................................................... 19

CONCLUSION ............................................................................................................................. 24

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1

The Official Committee of Unsecured Creditors (the “Creditors’ Committee”) appointed 

in the chapter 11 cases of the above-captioned debtors in possession (the “Debtors”), the Ad Hoc 

Committee of Senior Unsecured Noteholders (the “AHC”), BOKF, NA, in its capacity as 

Indenture Trustee for the Utility Senior Notes, the Ad Hoc Committee of Holders of Trade 

Claims (the “Trade Claims Committee”), Citibank, N.A., in its capacity as Utility Revolver 

Agent, and Mizuho Bank, in its capacity as Holdco Term Loan Agent (the “Term Loan Agent”) 

and Wilmington Trust, National Association, in its capacity as the successor administrative agent 

for the Holdco Revolver (“Wilmington Trust” and, together with all of the foregoing, 

collectively, the “Creditor Groups”)1 hereby respectfully set forth the Creditor Groups’ views on 

the appropriate rate of postpetition interest payable on unsecured claims under a chapter 11 plan 

in these cases, assuming for purposes of this brief that the Debtors prove to be solvent at the time 

any such plan is confirmed and becomes effective.2

 

PRELIMINARY STATEMENT 

1. There is no question that unsecured creditors of a solvent debtor are entitled 

to postpetition interest. Both plans presently on file in these cases recognize this and provide for 

 

1

 Wilmington Trust is a party to this brief solely with respect to the Reservation of Rights Statement on 

Behalf of Wilmington Trust below. Furthermore, the Creditor Groups submit this joint brief pursuant 

to the Court’s Order Establishing Pre-Confirmation Briefing And Hearing Schedule For Certain Legal 

Issues (the “Scheduling Order”) [Docket No. 4540], and this brief should not be construed to set forth 

any individual Creditor Group’s position on any matter other than the Postpetition Interest Issue (as 

defined in the Scheduling Order). In particular, although certain of the Creditor Groups are proponents 

of the TCC/AHC Plan (as defined below) and other Creditor Groups may or may not have taken a 

position in support of a particular plan for the Debtors, this brief is not intended to indicate any Creditor 

Group’s position on a particular plan other than with respect to the allowance of postpetition interest 

thereunder. Further, this brief is not intended to constitute any Creditor Group’s argument regarding 

the specific rate of interest payable on particular claims under state law or applicable contract terms. 

The Creditor Groups reserve all rights with respect to such matters. 

2

 The Scheduling Order provides that, for purposes of briefing and oral argument, “the parties shall 

presume the Debtors’ estates are solvent.” This brief adopts this presumption, with a full reservation 

of rights by each Creditor Group in case this presumption proves to be inapplicable for any reason. 

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the payment of some amount of postpetition interest. The crux of the dispute thus is not whether

unsecured creditors are entitled to postpetition interest, but rather the rate at which such interest 

must be paid for either plan to be confirmed. 

2. On that question, it is a longstanding rule in the Ninth Circuit and other 

circuits that creditors of a solvent estate have a presumptive right to be paid postpetition interest 

at the “non-bankruptcy” rate before value can be distributed to a debtor’s equity holders. This rule 

has deep roots in bankruptcy law and finds its modern-day expression in both the “unimpairment” 

provisions of Bankruptcy Code section 1124 and the absolute priority rule embedded in the “fair 

and equitable” requirement of Bankruptcy Code section 1129(b). 

3. Pursuant to Bankruptcy Code section 1124, a class of claims is only 

unimpaired if, among other things, the plan “leaves unaltered the legal, equitable, and contractual 

rights” of the creditors holding claims in that class. The Ninth Circuit has interpreted impairment 

broadly, finding that any alteration of the rights (even when permissible under the Bankruptcy 

Code) constitutes impairment. As a result, creditors with contracts or other applicable state law 

rights must be paid postpetition interest at the rates stated in those contracts or established by the 

applicable state law in order to be deemed unimpaired. A plan that pays creditors a lesser rate, 

such as by an arbitrary application of the federal judgment rate (the “FJR”), does not leave their 

rights “unaltered.” Creditors would get less than the amount for which they bargained or are 

otherwise entitled to under state law. 

4. Pursuant to Bankruptcy Code section 1129(b), a plan proponent seeking to 

cram down a plan on a non-consenting class of creditors must satisfy the “fair and equitable” 

requirement, embodying the absolute priority rule. Courts, in solvent debtor cases, have also 

looked at the fair and equitable test to determine whether a class is unimpaired under section 1124. 

In analyzing whether a plan meets the fair and equitable requirement with respect to the payment 

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of postpetition interest, courts presumptively enforce contract interest (including default rates), 

subject to a limited discretion only when there is a compelling equitable reason not to do so. This 

is essential to enforcement of the absolute priority rule: equity holders should not receive any 

recovery unless and until all creditors are truly “paid in full.” Courts recognize that to do otherwise 

would be to create a windfall for equity at the expense of creditors. 

5. Here, to the extent there is an exception to the presumption described 

above as a matter of equity, none has been offered by the Debtors and none is apparent. Under 

the case law, any such exception would need to be based on a full factual record developed in 

connection with the confirmation hearing, and certainly not on the basis of legal briefing without 

any factual record whatsoever. 

6. Finally, Onink v. Cardelucci (In re Cardelucci), 285 F.3d 1231 (9th Cir.), 

cert. denied, 537 U.S. 1072 (2002) (“Cardelucci”), simply has no bearing on the question of 

which postpetition interest rate should be paid to make a class of unsecured claims unimpaired or 

a plan to be fair and equitable with respect to such class. In Cardelucci, the Ninth Circuit simply 

held that the term “legal rate” in section 726(a)(5) means FJR. Section 726(a)(5) governs 

distributions in a solvent chapter 7 case and applies to impaired claims in chapter 11 cases only 

derivatively through the “best interests” test of section 1129(a)(7) that requires a comparison 

with a hypothetical chapter 7 liquidation. Cardelucci does not address either section 1124 or 

section 1129(b). 

7. At most, Cardelucci establishes the minimum rate of interest an impaired

creditor must be paid even when its class has accepted the plan in a solvent case. Cardelucci 

does not touch on the relevant issues at stake here—the interest rate to which a creditor is 

entitled when its class: (i) is either being “unimpaired” under section 1124 (which requires that 

creditors’ legal, equitable and contractual rights remain unaltered), or (ii) has rejected the plan 

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and must be crammed down in compliance with the “fair and equitable” requirement contained 

in section 1129(b). On those issues, this Court should follow the well-established authority that 

creditors in a solvent debtor case are presumptively entitled to the contract or otherwise 

applicable state law rate for reasons having nothing to do with section 726(a)(5). 

RELEVANT BACKGROUND 

8. On November 4, 2019, the Debtors filed the most recent iteration of their 

plan, the Joint Chapter 11 Plan of Reorganization (the “Debtors’ Plan”) [Docket No. 4564].3 The 

Debtors’ Plan lists numerous classes of unsecured claims against each Debtor and states that 

unsecured Funded Debt Claims (Classes 3A and 3B) and General Unsecured Claims (Classes 4A 

and 4B) are unimpaired. Debtors’ Plan § 3.2. 

9. For Class 3A (Holdco Funded Debt Claims) and Classes 4A and 4B 

(General Unsecured Claims), the Debtors’ Plan provides for the payment of those claims in full, 

in cash, including postpetition interest at the FJR. Debtors’ Plan §§ 4.3, 4.4, 4.17. For Class 3B 

(Utility Funded Debt Claims), the Debtors’ Plan provides for the same treatment, but further 

provides that “if it is determined that . . . postpetition interest is payable at a rate other than the 

[FJR], the treatment of such Claim shall be modified in a manner to render the Claim Unimpaired.” 

Debtors’ Plan § 4.16. The Debtors’ Plan contains no such provision with respect to Class 3A, 4A 

or 4B, apparently seeking to deprive the holders of claims in those classes of recourse to 

contractual or any other interest rate that might be available under applicable law. 

10. On October 9, 2019, the Court modified the Debtors’ exclusivity and 

ordered that the Official Committee of Tort Claimants (the “TCC”) and the AHC file their own 

 

3

 Capitalized terms not otherwise defined herein have the meanings ascribed to them in the Debtors’ 

Plan. 

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plan of reorganization. In compliance therewith, they filed their Joint Chapter 11 Plan (the 

“TCC/AHC Plan”) [Docket No. 4257] on October 17, 2019. 

11. The TCC/AHC Plan also lists numerous classes of unsecured claims and 

provides that all such claims are unimpaired (either by riding through, being reinstated or being 

paid in full). Unlike the Debtors’ Plan, however, the TCC/AHC Plan provides that those unsecured 

claims will receive postpetition interest at applicable contract rates, with the FJR paid on claims 

where no contract rate exists.4 

12. Both plans set the FJR at 2.59%. Debtors’ Plan § 1.69. TCC/AHC Plan 

§ 1.67. Both plans provide that holders of Holdco’s common stock will retain their equity interests 

(subject to dilution) and that the equity interests that Holdco holds in Pacific Gas and Electric 

Company will be reinstated. Debtors’ Plan §§ 4.12, 4.13, 4.26, 4.27; TCC/AHC Plan §§ 4.12, 

4.13, 4.29, 4.30. 

ARGUMENT 

I. Unsecured Creditors Are Entitled to Postpetition Interest In a Solvent Debtor 

Case. 

13. There are three distinct independent legal grounds for the requirement to 

pay postpetition interest to unsecured creditors in a solvent debtor case. First, a plan may leave a 

class of unsecured claims “unimpaired” under section 1124, by either reinstating such claims or 

otherwise leaving all legal, equitable and contractual rights of their holders—including the right 

to receive interest through the date of payment—unaltered. 

14. Second, in a cramdown plan, where an impaired class of unsecured claims 

has rejected the plan, the “fair and equitable” test of Bankruptcy Code section 1129(b) likewise 

 

4

 The AHC takes no position in this brief with respect to the appropriate rate of interest where a claim is 

based on a contract that does not expressly provide for a particular rate, or is not based on a contract at 

all. The AHC reserves all rights on this issue. 

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requires that postpetition interest be paid to the holders of claims in such class before any 

distribution is made to the debtor’s equity holders. 

15. Third, the “best interests of creditors” test in section 1129(a)(7) also 

requires that postpetition interest be paid to rejecting unsecured creditors (even if their class has 

accepted the plan) before any distribution is made to a debtor’s equity holders. 

16. While each of these potential scenarios is discussed below, it is highly 

unlikely that the third scenario—the only scenario addressed by the Ninth Circuit in Cardelucci—

will ever come to pass in these cases. The Creditor Groups do not believe that, given the right to 

vote (i.e., if designated “impaired”), unsecured creditors in any class would accept a plan that pays 

them postpetition interest at something less than they are entitled to under their contracts or state 

law, thereby providing a windfall to equity. That means that the Debtors would have to satisfy 

the cramdown requirement of section 1129(b), including the fair and equitable test, in order to 

confirm such a plan. 

17. Only the best interest of creditors test of section 1129(a)(7) is tied to 

payment of postpetition interest at the “legal rate” referred to in section 726(a)(5) and addressed 

in Cardelucci. Neither unimpairment under section 1124 nor the fair and equitable test under 

section 1129(b) is tied in any way to section 726(a) and its “legal rate” prescription. To the 

contrary, they are separate tests with distinct requirements. As discussed in Section II below, in a 

solvent debtor case, there is a presumption that contract or otherwise applicable state law rate must 

be paid both in the context of unimpairment and for the satisfaction of the fair and equitable test. 

A. Under Section 1124, Unimpaired Unsecured Creditors Are Entitled to 

Retain All of their Legal, Equitable and Contractual Rights Under 

Applicable State Law, Including the Right to Collect Interest at 

Contract or Otherwise Applicable State Law Rates. 

18. Section 1124 provides two ways for a plan to leave claims unimpaired: 

(i) under section1124(1), a claim is “unimpaired” under a plan when the plan “leaves unaltered the 

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legal, equitable, and contractual rights to which such claim . . . entitles the holder of such claim,” 

and (ii) under section 1124(2), a claim is “unimpaired” if the plan: (a) reinstates the claim’s 

maturity, (b) cures all existing defaults (with certain specified exceptions), (c) compensates the 

holder for any reliance damages, and (d) does not otherwise “alter the legal, equitable, or 

contractual rights” of the holder. 11 U.S.C. § 1124. A debtor seeking to prevent a class of creditors 

from voting on its plan (thereby avoiding the need to meet the cramdown section of 1129(b)) bears 

the burden of establishing that the class is not impaired under the plan. See id. 

19. Because statutory construction is a “holistic endeavor,”5 these two 

provisions of section 1124 must be interpreted in harmony with each other, particularly as they use 

substantially the same language to describe the rights of a claimholder that the plan cannot alter 

without impairing: all “legal, equitable, or contractual rights” to which the holder of the claim is 

entitled. 

20. Courts interpreting section 1124(2) agree that the requirement to cure 

existing defaults without altering the claimholder’s “legal, equitable, or contractual rights” means 

that the debtor must honor the terms of its contract with the claimholder, including any provisions 

relating to the payment of interest. See, e.g., Pacifica L 51 LLC v. New Invs., Inc. (In re New 

Invs., Inc.), 840 F.3d 1137, 1142 (9th Cir. 2016) (stating that “[f]or a debtor to render . . . a creditor 

‘unimpaired’ and unable to object to the debtor’s plan, the debtor must cure the default but may 

not ‘otherwise alter the . . . contractual rights’ of the creditor,” including the contractual right to 

“post-default interest”) (internal citations omitted); In re Moody Nat’l SHS Houston H, LLC, 426 

B.R. 667, 676 (Bankr. S.D. Tex. 2010) (holding that a plan must provide for postpetition interest 

“in accordance with state law” to “cure” under section 1124(2)). In other words, the phrase “legal, 

equitable, or contractual rights” in subsection 1124(2) is understood to refer to the claimholder’s 

 

5

 United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 371 (1988). 

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rights under state law. There can be no logical reason for substantially identical language in 

subsection 1124(1) to be interpreted differently.6

 

21. The Ninth Circuit reads section 1124 to mean that “Congress define[d] 

impairment in the broadest possible terms” and that “any alteration of the rights constitutes 

impairment even if the value of the rights is enhanced.” L& J Anaheim Assocs. v. Kawasaki 

Leasing Int’l, Inc. (In re L & J Anaheim Assocs.), 995 F.2d 940, 942 (9th Cir. 1993) (“L & J 

Anaheim”) (quoting In re Madison Hotel Assocs., 749 F.2d 410, 418 (7th Cir. 1984)) (emphasis 

added). See also Acequia, Inc. v. Clinton (In re Acequia, Inc.), 787 F.2d 1352, 1363 (9th Cir. 

1986). In L & J Anaheim, the debtor proposed to sell a creditor’s collateral under a plan of 

reorganization pursuant to court-approved procedures. The Ninth Circuit held that, because this 

plan provision deprived the creditor of its bargained-for remedies, the creditor was impaired under 

the plan even if its rights may have been actually enhanced: “any alteration of the rights constitutes 

impairment even if the value of the rights is enhanced.” Id. 

22. Viewed through this wide lens, it is crystal clear that depriving creditors of 

the interest rate they had bargained or are otherwise entitled to under state law for constitutes 

“impairment.” Even a creditor who is paid “in full” will be deemed impaired by a plan that fails 

to preserve the creditor’s prepetition state-law rights. See, e.g., In re Rexford Prop. LLC, 558 B.R. 

352, 369 (Bankr. C.D. Cal. 2016) (trade creditor impaired by plan that paid 100% of claim 

conditioned on continuation of business relationship). Accordingly, to be considered unimpaired, 

 

6

 Furthermore, the Debtors’ Plan allows some classes of unsecured claims (the “Ride-Through Claims”) 

to ride through these cases unaffected, allowing their holders to pursue their respective claims against 

the applicable reorganized Debtor(s) “as if the Chapter 11 Cases had not commenced.” Clearly, when 

the Ride-Through Claims are pursued by their holders post-emergence, these holders will be entitled to 

all of their prepetition rights under applicable state law, including the right to be paid contract rate 

interest (or other interest payable under state law) that accrued during the pendency of these cases. 

Obviously, all unsecured claims that are deemed unimpaired under the Debtors’ Plan should be treated 

equally. Thus, if the holders of the Ride-Through Claims will be entitled to all of their state-law rights, 

so should the holders of all other unimpaired unsecured claims.

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the Debtors’ unsecured creditors are entitled to receive everything they would be entitled to under 

applicable state law, including the interest on their claims at the applicable rate. 

B. Unsecured Creditors in Rejecting Classes Are Entitled to Postpetition 

Interest at Contract or Otherwise Applicable State Law Rates Under 

the Fair and Equitable Test of Section 1129(b). 

23. Another scenario in which unsecured creditors of a solvent debtor may be 

entitled to postpetition interest is where a class of unsecured impaired claims has voted to reject 

the plan, and the plan proponent seeks to confirm that plan via a cramdown under section 1129(b) 

of the Bankruptcy Code. In that circumstance, the plan proponent bears the burden of establishing, 

among other things, that the plan is “fair and equitable” to the rejecting class. See United States 

ex. rel. Farmers Home Admin. v. Arnold & Baker Farms (In re Arnold & Baker Farms), 177 B.R. 

648, 654 (B.A.P. 9th Cir. 1994), aff’d, 85 F.3d 1415 (9th Cir. 1996) (debtor has burden of proof 

to establish requirements of confirmation are met). 

24. By incorporating the “fair and equitable” standard into the Bankruptcy 

Code, Congress codified the “absolute priority” rule. Official Comm. Of Unsecured Creditors v. 

Dow Corning Corp. (In re Dow Corning Corp.), 456 F.3d 668, 672 (6th Cir. 2006) (“Dow III”); 

see also H.R. Rep. 103-835, 48, 1994 U.S.C.C.A.N. 3340, 3357 (“The words ‘fair and equitable’ 

are terms of art that have a well established meaning under the case law of the Bankruptcy Act as 

well as under the Bankruptcy Code.”). The Supreme Court has invoked this rule in defense of 

creditors demanding postpetition interest at contract rate. See Consol. Rock Prod. Co v. Du Bois, 

312 U.S. 510, 527 (1941) (stating that the plan “runs afoul” of the absolute priority rule where it 

provides for interest rate to the debtor’s creditors at the rate that is lower than that provided for in 

the applicable instruments). The Supreme Court stated that, before equity could receive anything 

under the debtor’s plan, creditors had to receive “full compensatory treatment,” which included 

postpetition interest at contract rate. Id. at 529. See also Debentureholders v. Cont. Inv. Corp., 

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679 F.2d 264, 270 (1st Cir. 1982) (ruling, in a solvent debtor case, that the plan was “unfair and 

inequitable because [it] . . . does not provide in exchange for the creditor’s contractual right [to 

interest] just compensation”); In re Dow Corning Corp., 244 B.R. 678, 695 (Bankr. E.D. Mich. 

1999) (“Dow I”) (holding that the “fair and equitable” test requires payment of postpetition interest 

at contract rate, stating that, in a solvent debtor case “the rationale for use of the contract rate of 

interest is straightforward: A debtor with the financial wherewithal to honor its contractual 

commitments should be required to do so.”).7 The Debtors assert in their plan that they do have 

the financial wherewithal to pay whatever interest rate is determined by this Court to be 

appropriate. 

25. In short, the Debtors should not be permitted to allege unimpairment as a 

way to both disenfranchise unsecured creditors from the right to vote and deprive them of the 

benefit of the “fair and equitable” requirement of section 1129(b). Faced with this same scenario, 

the bankruptcy court in In re Energy Future Holdings Corp., 540 B.R. 109, 124 (Bankr. D. Del. 

2015) (“EFH”), recognized the unsecured creditors’ rights to be treated fairly and equitably, 

whether the plan treats them as impaired or unimpaired: “In effect, the Court holds that the fair 

and equitable test as applied to [impaired] unsecured creditors in solvent debtor cases . . . must 

also be met in solvent debtor cases for such creditors to be unimpaired.” 

26. Applying this sound reasoning, the Court’s inquiry into the appropriate 

interest rate in these cases—whether it be the rate necessary to ensure that unsecured claims are 

 

7

 As the First Circuit noted in UPS Capital Bus. Credit v. Gencarelli, 501 F.3d 1, 7 (1st Cir. 2007) 

(“Gencarelli”), modern cases on point have deep roots in pre-Code and English law. See New York v. 

Saper, 336 U.S. 328, 330 n.7 (1949) (collecting precedents under English law for the proposition that 

“if the alleged ‘bankrupt’ proved solvent, creditors received post-bankruptcy interest before any 

surplus to the debtor”); Vanston Bondholders Protective Comm. v. Green, 329 U.S. 156, 165 (1946); 

Am. Iron & Steel Mfg. Co. v. Seabord Air Line Ry., 233 U.S. 261, 267 (1914) (“[I]n the rare 

instances where the assets ultimately proved sufficient for the purpose, . . . creditors were entitled to 

interest after adjudication.”); Matter of Chicago, Milwaukee, St. Paul and Pacific R. Co., 791 F. 2d 

524, 530 (8th Cir. 1986) (“[W]hen the debtor is solvent the judicial task is to give each creditor the 

measure of [its] contractual claim, no more and no less.”). 

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truly unimpaired under section 1124 or to ensure that unsecured claims, if impaired, are treated 

fairly and equitably in a cramdown plan—is effectively one and the same. And in the case of a 

solvent debtor, that inquiry begins with a presumption that interest should be payable at the 

contract or otherwise applicable state law rates. 

C. Under Section 1129(a)(7), in Contrast, Unsecured Creditors in an 

Impaired Class Are Entitled to Receive Postpetition Interest at Least at 

the “Legal Rate” Before Any Distribution May Be Made to the 

Debtor’s Equity Holders. 

27. Finally, albeit not relevant here, there is yet a third scenario where even 

claims in an impaired accepting class are entitled to postpetition interest. Pursuant to section 

1129(a)(7)(A) of the Bankruptcy Code, for a chapter 11 plan to be confirmed, each creditor in an 

impaired class must have either accepted the plan or be entitled, under the plan, to receive at least 

as much as it would have received in a hypothetical chapter 7 liquidation, even if the class as a 

whole has voted to accept the plan. 

28. The priority of distribution of estate property in a chapter 7 case is governed 

by section 726(a) of the Bankruptcy Code. Section 726(a)(5) provides that, before any distribution 

is made “to the debtor,” payment must be made on account “of interest at the legal rate from the 

date of the filing of the petition” on allowed unsecured claims. 11 U.S.C. §726(a)(5) (emphasis 

added). The phrase “legal rate” is not defined in the Bankruptcy Code and it has been interpreted 

differently by different courts. 

29. In this way, section 726(a) of the Bankruptcy Code, and the “legal rate” 

provided therein, get “imported” to a limited extent into cases under chapter 11. By its own terms, 

however, section 1129(a)(7) only applies to impaired claims. See 11 U.S.C. § 1129(a)(7); see also 

Ultra Petroleum Corp. v. Ad Hoc Comm. of Unsecured Creditors of Ultra Res., Inc. (In re Ultra 

Petroleum Corp.), 913 F.3d 533, 546 (5th Cir. 2019) (“Ultra Petroleum”) (affirming that section 

726(a)(5)’s solvent-debtor exception “applies to all creditors in Chapter 7 cases, but only impaired 

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creditors in Chapter 11 cases. . . . Its plain text does not apply to unimpaired claims.” (emphasis 

in original)).8

 Thus, whatever the phrase “the legal rate” may mean in section 726(a)(5), it does 

not provide any guidance as to: (i) the rate of postpetition interest payable in order to unimpair a 

claim as defined in section 1124(1), or (ii) the rate payable by a solvent debtor when impaired 

claims are being crammed down under section 1129(b). In the absence of section 1129(a)(7), 

which by its express terms only applies to impaired claims, section 726(a)(5) and its reference to 

“the legal rate” is simply not applicable. See 11 U.S.C. § 103(b) (“Subchapters I and II of chapter 

7 of this title apply only in a case under such chapter.”). 

30. The Debtors no doubt will attempt to rely on the Ninth Circuit’s decision in 

Cardelucci. But there the Ninth Circuit focused on a specific question: the meaning of the phrase 

“legal rate” in section 726(a)(5), which it held to mean FJR, as determined by 28 U.S.C. § 1961(a). 

285 F.3d at 1233 (“We conclude that 11 U.S.C. § 726(a)(5) mandates application of the federal 

interest rate.”) (emphasis added). In reaching that conclusion, the Ninth Circuit relied heavily on 

Beguelin v. Volcano Vision, Inc. (In re Beguelin), 220 B.R. 94 (B.A.P. 9th Cir. 1998) 

(“Beguelin”)—but that case also was expressly limited to section 726(a)(5). See id. at 101 (“We 

hold that ‘interest at the legal rate’ under § 726(a)(5) is measured by the federal judgment rate”) 

(emphasis added).9 

 

8

 See also EFH, 540 B.R. at 123 (acknowledging that “neither section 726(a)(5) nor section 1129(a)(7) 

apply to unimpaired creditors”). 

9

 In Cardelucci, the claim—for which the court was assessing the appropriate rate of postpetition 

interest—was in an accepting impaired class. See Cardelucci, Appellee’s Opening Brief, 2001 WL 

34091272, at 17 (“At the confirmation hearing, the [creditor] elected to rely solely on §726(a)(5) as 

made applicable by § 1129(a)(7)(ii) and, subject to a reservation of rights to appeal the bankruptcy 

court’s determination on that issue, voted to accept the plan. Accordingly, the only issue preserved for 

appeal is the meaning of ‘interest at the legal rate’ as used in §726(a)(5). That meaning should not 

be distorted simply because the [creditor] failed to consider the potential benefit of forcing a cramdown 

under § 1129(b).”) (emphasis added). 

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31. The fact that Cardelucci does not require payment of postpetition interest at 

the FJR in all circumstances is exemplified by the Ninth Circuit’s decision in Platinum Capital, 

Inc. v. Sylmar Plaza, L.P. (In re Sylmar Plaza, L.P.), 314 F.3d 1070, 1073 (9th Cir. 2002), entered 

only months after the Ninth Circuit’s decision in Cardelucci. In Sylmar, the Ninth Circuit affirmed 

confirmation of a chapter 11 plan that left a prepetition lender’s unsecured deficiency claim 

unimpaired by paying the lender in full, with postpetition interest at the contract rate. Id. at 1073. 

Other general unsecured creditors were paid postpetition interest at a rate of 10%. Thus, payment 

of postpetition interest on unimpaired claims at the contract rate, or otherwise consistent with state 

law, is supported by Sylmar and not barred by Cardelucci. 

32. Cardelucci makes one point worth considering here, though: the inequities 

of permitting a debtor (or its equity holders) to receive a windfall at the expense of creditors it is 

capable of paying in full. The Ninth Circuit’s parting note in Cardelucci was that courts are 

constrained from correcting such inequities on a case-by-case basis where there is a “statutory term 

with a definitive meaning that cannot shift depending on the interests invoked by the specific 

factual circumstances before the court.” Cardelucci, 285 F.3d at 1236. The Ninth Circuit was 

referring to the term “legal rate” in section 726(a)(5) of the Bankruptcy Code, which has no 

application here. 

II. In a Solvent Debtor Case, Contract or Other State Law Rates of Interest 

Presumptively Apply to the Payment of Postpetition Interest. 

A. The General Rule in the Ninth Circuit and Elsewhere Is that 

Contractual Rights to Interest in Solvent Debtor Cases Are 

Presumptively Enforced. 

33. The general rule in the Ninth Circuit and elsewhere is that contractual rights 

to interest in solvent debtor cases are presumptively enforced, subject only to potential equitable 

considerations. See Gen. Elec. Capital Corp. v. Future Media Prods., 547 F.3d 956 (9th Cir. 2008); 

Commercial Paper Holders v. Hine (In re Beverly Hills Bancorp), 752 F.2d 1334, 1339 (9th Cir. 

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1984); Epicenter Partners, L.L.C. v. CPF Vaseo Ass’n (In re Epicenter Partners, L.L.C.), No. 17-

1216, 2018 WL 1354330, at *7 (B.A.P. 9th Cir. Mar. 15, 2018). See also Gencarelli, 501 F.3d at 

7 (“This is a solvent debtor case and, as such, the equities strongly favor holding the debtor to his 

contractual obligations as long as those obligations are legally enforceable under applicable nonbankruptcy law”); Ruskin v. Griffiths, 269 F.2d 827, 832 (2d Cir. 1959) (“[W]here there is no 

showing that the creditor entitled to the increased interest caused any unjust delay in the 

proceedings, it seems to us the opposite of equity to allow the debtor to escape the expresslybargained-for result of its act.”); Bradford v. Crozier (In re Laymon), 958 F.2d 72, 75 (5th Cir. 

1992) (contract rate applies absent inequitable or unconscionable result); Dow III, 456 F.3d at 680 

(“Courts in solvent debtor cases have overwhelmingly concluded that there is a presumption that 

the default interest rate should be allowed.”); In re Terry Ltd. P’ship, 27 F.3d 241, 243 (7th Cir. 

1994) (noting “presumption in favor of the contract rate subject to rebuttal based on equitable 

considerations”).10 

34. When “a solvent debtor seeks confirmation of its plan, . . . equitable 

considerations operate differently” than when the debtor is insolvent. Dow III, 456 F.3d at 678. 

As courts of appeal have repeatedly held, solvency means that “the role that equitable principles 

play in the allocation of competing interest is significantly reduced” and gives way to “the 

presumption . . . that a bankruptcy court’s role is merely to enforce the contractual rights of the 

parties.” Id. at 679. In Dow III, a class of unsecured commercial debt holders objected to a solvent 

debtor’s plan of reorganization on the ground that the court “should enforce their rights under the 

 

10 “The Ninth Circuit applies applicable state law interest rates absent federal preemption. . . . Bankruptcy 

is no different.” Shoen v. Shoen (In re Shoen), 1997 WL 1403808 (B.A.P. 9th Cir. 1997), aff’d 176 

F.3d 1150, 1165 (9th Cir. 1999); Hamilton v. Elite of L.A., Inc. (In re Hamilton), 584 B.R. 310, 323 

(B.A.P. 9th Cir. 2018); accord Sea Hawk Seafoods, Inc. v. Exxon Corp. (In re Exxon Valdez), 484 F.3d 

1098, 1101 (9th Cir. 2007) (“[S]tate law applies to Plaintiff’s claim for prejudgment interest under state 

law unless federal law preempts it.”). There is no federal law that preempts application of state law 

interest when unsecured claims are unimpaired under a solvent debtor’s chapter 11 plan. 

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contract, including their right to interest awarded at the default rate as set forth in the terms of their 

contract,” because “[t]o do otherwise (i.e., to interpret the amended plan as not requiring the 

payment of default interest) . . . would violate § 1129(b)’s fair and equitable standard.” Id. at 679. 

The Sixth Circuit “agree[d],” holding “like the other courts to have considered this issue . . . [we 

conclude] that there is a presumption that [contractual] default interest should be paid to unsecured 

claim holders in a solvent debtor case.” Id. at 680.11 Indeed, when the debtor is solvent, depriving 

creditors of the benefit of their bargain is “the opposite of equity.” Ruskin, 269 F.2d at 832. 

35. When addressing the analogous question of equitable factors that might 

diminish an oversecured creditor’s right to contract rate interest, courts have considered equitable 

factors to determine whether the presumption in favor of the contract rate has been rebutted, 

including the following: (i) whether the creditor engaged in misconduct or unjust delay; 

(ii) whether application of the contractual interest rate would harm unsecured creditors; (iii) 

whether the contractual interest rate constitutes a penalty; and (iv) whether an award of interest at 

the contract rate would impair the debtor’s fresh start. See In re Gen. Growth Props., Inc., No. 09-

11977, 2011 WL 2974305, at *4 (Bankr. S.D.N.Y. July 20, 2011). None of these factors are 

present here. 

36. First, there is no evidence of any misconduct or unjust delay. To the 

contrary, various creditors holding funded debt claims, together with the TCC, have filed the 

TCC/AHC Plan in an effort that they believe will foster a timely and fair resolution of these cases. 

37. Second, application of the contract or other state law rates will not harm 

other creditors. The Debtors are solvent and entirely capable of paying contract rates of interest 

to those unsecured creditors whose contracts specify contract rates, while still paying in full other 

 

11 The debtor in Dow III, like here, was solvent when it filed chapter 11, did not dispute its ability to pay 

all unsecured creditors and filed for bankruptcy protection to settle mass tort claims. Id. at 671. 

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unsecured creditors consistent with their state law rights. Indeed, the Debtors have repeatedly 

represented that they will have sufficient funds to pay postpetition interest at the contract rate in 

the event the Court determines that is the appropriate rate. 

38. Third, there is no evidence that any of the rates payable here is punitive. 

39. Fourth, payment of the contract or state law rates will not hinder the 

Debtors’ reorganization. The TCC/AHC Plan demonstrates that the payment of bargained-for 

contract rates will not impair the fair treatment of all stakeholders and is fully consistent with the 

timely financial restructuring of the Debtors and their successful emergence from bankruptcy. 

40. In fact, the equities of these cases reinforce the presumption that unsecured 

creditors are entitled to their state law rights, including contract or state law rate of interest. As 

recently as August 2018, and while facing significant potential liability related to the 2017 

Northern California wildfires, the Debtors agreed to the terms of new unsecured senior notes. The 

Debtors’ ability to issue notes and continued access to revolving credit lines from their banks 

resulted in hundreds of millions of dollars (if not more) of liquidity that helped the Debtors extend 

the time during which they could remain a going concern and explore other, non-bankruptcy 

options. There are no countervailing equitable considerations at play; payment of contract or other 

state law rate interest will not have any punitive effect on the Debtors. The total amount of 

postpetition interest, while significant, is but a fraction of the overall value of the Debtors’ estates, 

and there are no concerns that the payment will result in other creditors (including, importantly, 

wildfire victims) recovering less. 

41. The same is true with respect to trade claims, whose interest rates are set by 

Cal. Civ. Code § 3289, requiring payment of interest either at contract rate or, in the absence of a 

contract rate, 10% per annum. By the Debtors’ own admission, as of the petition date, they had 

approximately $2.1 billion in outstanding trade payables which may not be paid until 

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approximately 18 months after the commencement of these cases as of the petition date.12 It would 

be wholly inequitable for any constituency to increase its recoveries or stakes in the reorganized 

debtors by depriving trade claimants of their state law right to interest while they await repayment 

for the goods and services provided to the Debtors prepetition. 

B. In the Absence of a Stated Contract Rate, California Law Imposes a 

Statutory Interest Rate for Contract-Based Claims Which Benefits 

from the Same Presumption in a Solvent Debtor Case. 

42. California law provides statutory protections for creditors where a contract 

counterparty does not perform its obligations, by imposing a mandatory 10% interest rate for any 

breach of contract claim, where the contract does not contain a stated interest rate. Cal. Civ. Code 

§ 3289. Specifically, for any claim based on contract, interest accrues either at the “legal rate of 

interest stipulated by a contract,” or, in the absence of a contract rate, “at a rate of 10 percent per 

annum after a breach.” Id.13 In other words, if a contract governed by California law does not 

include a contract rate of interest, California Civil Code section 3289 fills that gap by inserting a 

10% interest rate. In re McKean, No. 11-44932, 2012 WL 3074801, at *2 (Bankr. N.D. Cal. July 

30, 2012) (“In the absence of a rate set forth in an agreement of the parties, the Court will apply 

the California state statutory rate of ten percent (10%) per annum to the unpaid debts, as set forth 

in Cal. Civ. Code § 3289, to the entire debt . . . .”). 

43. The 10% interest rate that section 3289(b) builds into California contracts 

applies both to express written contracts and to implied or oral contracts. See, e.g., JLG 

Enterprises, Inc. v. Excalibur Sires, Inc., No. 10-02138, 2011 WL 5526321, at *5 (E.D. Cal. Nov. 

14, 2011), report and recommendation adopted, by 2011 WL 6260360 (E.D. Cal. Dec. 15, 2011) 

 

12 See Declaration of Jason P. Wells in Support of First Day Motions and Related Relief [Docket No. 28], 

p. 11. 

13 The interest rate under California Civil Code section 3289(b) is the same as California’s 10% postjudgment interest rate. Cal. Civ. Proc. Code § 685.010. 

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(denying request for 18% pre-judgment interest in favor of the statutory 10% rate in an action for 

breach of an oral agreement to provide services where the plaintiff failed to substantiate statements 

that contract parties agreed to 18%); Avitan v. Arias, No. 12003654, 2012 WL 12949889, at *2 

(C.D. Cal. Oct. 15, 2012) (awarding interest at Cal. Civ. Code § 3289(b)’s 10% rate where seller 

provided goods under an oral contract, and did not receive full payment). This is because 

California recognizes “implied contracts” based on course of performance or course of dealing, 

and affords parties to such implied contracts the same substantive rights as to parties to express 

contracts. See Foley v. Interactive Data Corp., 47 Cal. 3d 654, 677-78, 765 P.2d 373, 385, 254 

Cal. Rptr. 211, 223 (1988) (“Such implied-in-fact contract terms ordinarily stand on equal footing 

with express terms.”) (citation omitted); Div. of Labor Law Enf’t v. Transpacific Transp. Co., 69 

Cal. App. 3d 268, 275, 137 Cal. Rptr. 855, 859 (Ct. App. 1977) (“As to the basic elements, there 

is no difference between an express and implied contract.”). 

44. Accordingly, creditors asserting contract-based claims against the Debtors, 

such as trade claimants, are entitled to postpetition interest imposed by statute, just as if it were set 

forth in a contract. These are the rights the vendors had when they provided goods and services to 

the Debtors, which should not now be modified where the Debtors are presumed to be solvent. 

This is particularly critical in these chapter 11 cases, given that the Debtors’ form contract for 

vendors did not include a contract interest rate in the event of the Debtors’ failure to timely pay.14 

Even in the absence of a written contract, under California law, trade creditors’ right to payment 

for goods and services constitute implied contracts, affording trade creditors the same rights as 

written contracts, including payment of interest in the event of a failure to timely perform. In such 

 

14 See, e.g., Ex. A, Proof of Claim No. 209-2, Part 2, pp. 18-35 (attaching Contract Work Authorization, 

reflecting no interest rate for missed payments, but including invoices specific to Authorization, 

reflecting no interest rate for missed payments, but including invoices specific to service provider with 

stated interest rate); Ex. B, Proof of Claim No. 2764 (attaching form PG&E vendor contract, reflecting 

no interest rate for missed payments).

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circumstances, California’s statutory interest rate in Cal. Civ. Code § 3289(b) fills the gap, and 

entitles trade claimants to 10% interest on their claims against the Debtors. 

III. Neither Ultra Petroleum Nor PPI Enterprises Compels a Different Result. 

45. The Debtors may argue that the fact that unsecured creditors are treated as 

unimpaired in both plans currently before the Court does not override the general prohibition on 

the payment of postpetition interest under Bankruptcy Code section 502(b)(2), thus leaving their 

entitlement to postpetition interest solely to the Court’s equitable powers. In support of this 

argument, the Debtors are likely to rely on a recent decision by the Fifth Circuit in Ultra Petroleum. 

In that case, the Fifth Circuit applied, and misinterpreted, a distinction drawn by an earlier Third 

Circuit case between “plan impairment” and “statutory impairment.” Ignoring the statutory 

language of section 1124, which requires that rights must be left unaltered as to a creditor’s 

“claim,” not its “allowed claim,” the Fifth Circuit held that the creditor’s claim outside of 

bankruptcy was not “the relevant barometer for impairment,” and that section 502(b)(2) that 

disallows unmatured interest, and not the plan, deprived unsecured creditors of their right to 

contract rate interest. 913 F.3d at 540. 

46. The Ultra Petroleum ruling, however, is neither binding on this Court nor 

persuasive. The Fifth Circuit heavily relied on an erroneous interpretation of an earlier Third 

Circuit case, Solow v. PPI Enters. (U.S.) (In re PPI Enters. (U.S.)), 344 F.3d 197 (3d Cir. 2003) 

(“PPI Enterprises”), which dealt with the statutory cap on landlords’ claims under section 

502(b)(6), rather than the prohibition on postpetition interest under section 502(b)(2).15 The Fifth 

 

15 The Third Circuit made an effort to explain why claims for which allowance may be limited by 

operation of section 502(b)(2) should be treated differently for purposes of determining impairment 

than claims the allowance of which is limited by section 502(b)(6). In contrast to section 502(b)(6), 

which imposes an “absolute” and “mandatory” limitation (PPI Enterprises, 324 F.3d at 204-05), such 

that no plan may be proposed that does not give effect to these limitations, the limitation of section 

502(b)(2) is not absolute (indeed, while Bankruptcy Code section 726(a)(5) creates an express statutory 

exception to section 502(b)(2) in cases of solvent debtors, no statutory exception is found to section 

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Circuit called this “a distinction without a difference” (913 F.3d at 541), completely ignoring the 

fact that the plan in PPI Enterprises paid postpetition interest and that the PPI Enterprises court

itself stated that the legislative history of section 1124 clearly indicates that Congress intended to 

overrule the effect of 502(b)(2) in the context of impairment. Id. at 207. 

47. The legislative history of section 1124 confirms that Congress intended the 

impairment tests of section 1124 to be applied to the holder’s state law rights, particularly with 

respect to interest. Before the 1994 amendments, section 1124 had yet another sub-section, 

1124(3), which provided that a class of claims was unimpaired if the plan provided that each 

claimholder in such class “receive[s], on account of such claim . . . cash equal to . . . the allowed 

amount of such claim.” 11 U.S.C. § 1124(3), repealed by Bankruptcy Reform Act of 1994, Pub. 

L. No. 103-394, 108 Stat. 4106 (1994). But the 1994 amendments deleted subsection 1124(3) 

while leaving the rest of section 1124 intact. This deletion was in direct response to In re New 

Valley Corp., 168 B.R. 73 (Bankr. D.N.J. 1994), where a bankruptcy court held that a claim was 

unimpaired where the plan provided full payment of the allowed amount of the claim—after 

application of section 502(b)(2). Congress deleted former section 1124(3) for the express purpose 

of overruling that decision: 

In a recent Bankruptcy Court decision in In re New Valley Corp., 

168 B.R. 73 (Bankr. D.N.J. 1994), unsecured creditors were denied 

the right to receive postpetition interest on their allowed claims even 

though the debtor was liquidation and reorganization solvent. The 

New Valley decision [held] that a class that is paid the allowed 

amount of its claims in cash on the effective date of a plan is

unimpaired under section 1124(3), therefore is not entitled to vote, 

and is not entitled to receive postpetition interest. . . . In order to

preclude this unfair result in the future, the Committee finds it 

appropriate to delete section 1124(3) from the Bankruptcy Code.

 502(b)(6), regardless of the debtor’s solvency) and a plan may have varying provisions with respect to 

postpetition interest, some causing impairment of a particular claim, and some—not. Thus, depending 

on the rate of postpetition interest set by the plan with respect to a given claim, the plan may or may 

not impair such claim. 

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140 Cong. Rec. H10,752-01, at H10,768 (daily ed. Oct. 4, 1994) (statement of Rep. Brooks). 

48. Congress’s rejection of New Valley shows that payment of only the 

“allowed” amount of a claim (i.e., the amount limited by excluding unmatured interest per section 

502(b)(2)) is insufficient to render that claim unimpaired. Congress expressly stated its intention 

that “[a]s a result of this change, if a plan proposed to pay a class of claims [only] in the full 

allowed amount of the claims [under, e.g., section 1124(1)], the class would be impaired entitling 

creditors to vote.” Id. (emphasis added).16 See also In re Empire Generating Co., LLC, No. 19-

23007-rdd (Bankr. S.D.N.Y. June 20, 2019), ECF No. 175 (Drain, J.) (“The Bankruptcy Code was 

amended many years ago to take out a third provision of unimpairment . . . Congress took it out. 

The legislative history to that provision, which I wrote, makes it clear that Congress meant 1124 

to provide for post-petition interest. So you’re not going to convince me . . . to the contrary. I 

wrote it.”) (emphasis added). 

49. Indeed, as the EFH court has acknowledged, there is “an irreconcilable 

conflict” between extending the logic of PPI Enterprises to section 502(b)(2) and the clear 

Congressional intent expressed in deleting section 1124(3). EFH, 540 B.R. at 123 (explaining that 

“[t]o strictly apply the reasoning of the PPI Enterprises cases as to statutory impairment to 

[postpetition interest] would result in exactly the same result that led Congress to delete section 

1124(3) from the Bankruptcy Code”). 540 B.R. at 123. 

50. Even under the flawed reasoning of Ultra Petroleum, payment of 

postpetition interest at a contract rate was found warranted if a court concludes it is equitable to 

do so. In the end, the Fifth Circuit in Ultra Petroleum circled back to the language of section 

1124(1), finding that while the creditors might have “no legal right to post-petition interest at the 

 

16 Numerous courts have interpreted Congress’s action this way. See, e.g., In re Introgen Therapeutics, 

Inc., 429 B.R. 570, 581 (Bankr. W.D. Tex. 2010) (acknowledging that, after 1994 amendments, 

payment in full of principal amount of unsecured claims is not sufficient to render them unimpaired); 

In re Greate Bay Hotel & Casino, Inc., 251 B.R. 213 (Bankr. D.N.J. 2000) (same). 

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default rates” and no “contractual right to such interest,” the creditors “might have an equitable 

right to post-petition interest.” Ultra Petroleum, 913 F.3d at 551 (emphasis in original). For 

support, the Fifth Circuit noted that the bankruptcy court in EFH had held that “[f]or creditors to 

be unimpaired the plan must provide that the Court may award post-petition interest at an 

appropriate rate if it determines to do so under its equitable power.” Id. (quoting EFH, 540 B.R. 

at 124); see EFH, 540 B.R. at 123 (noting use of the word “equitable” in section 1124(1) and 

asking, after finding no impairment of legal or contractual rights: “what of the claimant’s equitable 

rights?”). EFH, in turn, makes clear that the “appropriate rate under equitable principles” is tied 

to the “fair and equitable test” of section 1129(b). 540 B.R. at 124.17

51. In light of the Debtors’ solvency, it makes no practical difference in these 

cases whether (for reasons just discussed) equitable impairment occurs under section 1124(1) or 

pursuant to the fair and equitable test under section 1129(b). Id. at 123; see Ultra Petroleum, 913 

F.3d at 551 (explaining that “[b]ankruptcy courts have been thought of as courts of equity, 

especially when it comes to awarding interest,” and that, because “by all accounts, the Code saying 

nothing about post-petition interest of unimpaired Chapter 11 claims . . . [,] equity might say 

something”); In re Beverly Hills Bancorp, 752 F.2d at 1339 (“An award of post-petition interest . 

. . may be allowed when the bankrupt later proves to be solvent. The award of postpetition interest 

is dependent on the equities of the case.”) (internal citations omitted). Where the debtor is solvent, 

 

17 The Fifth Circuit’s decision in Ultra Petroleum is also inconsistent with, and does not account for, the 

Ninth Circuit’s application of state law interest rates in the absence of federal preemption. In Ultra 

Petroleum, the Fifth Circuit acknowledged that the “parties point to only one Code provision setting a 

rate for postpetition interest on awards, § 726(a)(5), but [because the class was unimpaired], it does not 

apply to the creditors here.” 913 F.3d at 550. This led the court to “look outside the Code to see if a 

more general rule controls.” Id. In such a situation, where the Bankruptcy Code does not apply a 

specific postpetition interest rate, binding Ninth Circuit precedent is unambiguous: “state law interest 

rates apply.” Shoen, 176 F.3d at 1165.

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payment of interest to unsecured creditors at any rate less than the contract rate or applicable state 

law rate impairs these creditors’ equitable rights. 

52. In the end, the Debtors should not be permitted to allege unimpairment as a 

way both to disenfranchise unsecured creditor classes and to deprive them of the “fair and 

equitable” protections of section 1129(b). This Court’s inquiry into the appropriate postpetition 

interest rate in these circumstances—whether it be the rate necessary to ensure that unsecured 

creditor classes are truly unimpaired under section 1124 or to ensure that unsecured creditor 

classes, if impaired, are treated fairly and equitably—is effectively one and the same. 

Reservation of Rights Statement on Behalf of Wilmington Trust 

53. Wilmington Trust is the successor administrative agent to that certain 

Credit Agreement, dated as of April 27, 2015 (as amended, restated and otherwise supplemented, 

the “Holdco Revolver”). Wilmington Trust filed a proof of claim composed of (1) a liquidated 

amount of $300,398,500.00, which includes the principal amount of $300,000,000.00 and the 

pre-petition interest in the amount of $398,500.00, and (2) an unliquidated amount for the postpetition interest and all fees and expenses incurred, accrued up to the date of distribution, at the 

contract rate if legally available [Claim No. 55147]. 

54. The Scheduling Order directs the parties to assume that the Debtors are 

solvent. With that assumption, there is no basis for differing treatment of Holdco Revolver and 

Utility funded debt with respect to whether the contract rate of interest applies. Any plan that 

places the prepetition equity in the money cannot, consistent with the absolute priority rule, 

allow contract rate of interest at the Utility level but only the FJR of interest on the Holdco 

Revolver. Or, put differently, “unimpaired” must have the same meaning in both estates. The 

Debtors’ Plan inexplicably provides a toggle for the benefit of the Utility funded debt so that if 

the Court rules the contract rate of interest applies, the Debtors’ Plan would pay that, but makes 

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no similar provision for the Holdco Revolver. See Debtor’s Plan, section 4.16(a) 

(“Notwithstanding the foregoing, if it is determined that any holder of a Utility Funded Debt 

Claim is entitled to payment of a make-whole or similar amount or that postpetition interest is 

payable at a rate other than the Federal Judgment Rate, the treatment of such Claim shall be 

modified in a manner to render the Claim Unimpaired.”). Wilmington Trust reserves its rights as 

to the applicability and correct measure of contract rate of interest on the Holdco Revolver (e.g., 

whether the Eurodollar rate applies and whether the post-default increment applies). 

CONCLUSION 

WHEREFORE, based on the foregoing, the Creditor Groups respectfully submit that, to 

the extent the Debtors are determined to be solvent, postpetition interest on unsecured claims under 

any plan of reorganization that will be confirmed in these cases should be determined by the 

holders’ state law rights; in the case of contract-based claims, this means the applicable contract 

rate or as otherwise required under state law. 

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DATED: November 8, 2019 

MILBANK LLP 

 /s/ Thomas R. Kreller 

DENNIS F. DUNNE 

SAMUEL A. KHALIL 

GREGORY A. BRAY 

THOMAS R. KRELLER 

Counsel for the Official Committee of 

Unsecured Creditors 

STROOCK & STROOCK & LAVAN LLP 

/s/ Mark A. Speiser 

MARK A. SPEISER 

Counsel for Mizuho Bank, Ltd., in its capacity 

as HoldCo Term Loan Administrative Agent 

ARENT FOX LLP 

/s/ Aram Ordubegian 

ARAM ORDUBEGIAN 

ANDREW I. SILFEN 

BETH M. BROWNSTEIN 

Counsel for BOKF, NA, in its capacity as 

Indenture Trustee for the Utility Senior Notes 

PILLSBURY WINTHROP SHAW 

PITTMAN LLP 

/s/ M. David Minnick 

M. DAVID MINNICK 

LEO T. CROWLEY 

Counsel for Wilmington Trust, National 

Association, in its capacity as Administrative 

Agent for the Holdco Revolver 

AKIN GUMP STRAUSS HAUER & 

FELD LLP 

/s/ Ashley Vinson Crawford 

ASHLEY VINSON CRAWFORD 

MICHAEL S. STAMER 

IRA S. DIZENGOFF 

DAVID H. BOTTER 

ABID QURESHI 

Counsel for the Ad Hoc Committee of Senior 

Unsecured Noteholders of Pacific Gas and 

Electric Company 

GIBSON, DUNN & CRUTCHER LLP 

/s/ David M. Feldman 

DAVID M. FELDMAN 

MATTHEW D. MCGILL 

MATTHEW K. KELSEY 

Attorneys for the Ad Hoc Committee of 

Holders of Trade Claims

DAVIS POLK & WARDWELL LLP 

/s/ Timothy Graulich 

TIMOTHY GRAULICH 

DAVID SCHIFF 

DANIEL E. MEYER 

ANDREW D. YAPHE 

Counsel for Citibank N.A., as 

Administrative Agent for the 

Utility Revolving Credit Facility

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