Source: https://www.pbwt.com/bankruptcy-update-blog/second-circuit-addresses-key-chapter-11-plan-issue/
Timestamp: 2019-04-21 16:28:52+00:00

Document:
In addition to the numerous requirements for confirming a Chapter 11 plan that has been accepted by the requisite majorities of each impaired class, other requirements must be satisfied to successfully “cram down” a plan that has one or more dissenting impaired classes. Most importantly, the plan must not “discriminate unfairly,” and must be “fair and equitable, with respect to each” dissenting impaired class. The Code provides separate sets of criteria for being “fair and equitable” for classes of secured claims, unsecured claims and equity interests.
For a class of secured claims, “fair and equitable” requires that, unless the collateral is sold and the proceeds devoted to securing and paying the claims or the class members otherwise receive the “indubitable equivalent” of their secured claims, the class members receive a stream of “deferred cash payments” having a present value “of at least the value of” their claims.
Present value . . . is the current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate . . . . Determining the appropriate discount rate is the key to properly valuing future cash flows . . . .
begins by looking to the national prime rate, reported daily in the press, which reflects the financial market’s estimate of the amount a commercial bank should charge a creditworthy commercial borrower to compensate for the opportunity costs of the loan, the risk of inflation, and the relatively slight risk of default. Because bankrupt debtors typically pose a greater risk of nonpayment than solvent commercial borrowers, the approach then requires a bankruptcy court to adjust the prime rate accordingly. The appropriate size of that risk adjustment depends, of course, on such factors as the circumstances of the [bankruptcy] estate, the nature of the security, and the duration and feasibility of the reorganization plan.
Till’s formula approach did not allow for considering information from the lending-and-borrowing market where obligations comparable to the obligations proposed to be issued under a plan exist and have ascertainable interest and discount rates.
We think it likely that Congress intended bankruptcy judges and trustees to follow essentially the same approach when choosing an appropriate interest rate under any of these provisions. Moreover, we think Congress would favor an approach that is familiar in the financial community and that minimizes the need for expensive evidentiary proceedings.
[T]he market rate [found to be prevailing for comparable obligations] should be applied in Chapter 11 cases where there exists an efficient market. But where no efficient market exists for a Chapter 11 debtor, then the bankruptcy court should employ the formula approach endorsed by the Till plurality.
We adopt the Sixth Circuit’s two-step approach [in American HomePatient], which, in our view, best aligns with the Code and relevant precedent. We do not read the Till plurality as stating that efficient market rates are irrelevant in determining value in the Chapter 11 cramdown context. And, disregarding available efficient market rates would be a major departure from long-standing precedent dictating that “the best way to determine value is exposure to a market.” [citations omitted].
Till left considerable ambiguity for cases outside of Chapter 13. The Sixth Circuit in American HomePatient, now followed by the Second Circuit in MPM, went a long way toward resolving that ambiguity for Chapter 11 cases.
 For this purpose, a plan must be “accepted by creditors . . . that hold at least two-thirds in amount and more than one-half in number of the allowed claims of such class held by creditors . . . that have accepted or rejected such plan.” Bankruptcy Code § 1126(c).
 At least one impaired class must accept a plan. Bankruptcy Code § 1129(a)(10).
 See generally Bankruptcy Code § 1129(a).
 See generally Bankruptcy Code § 1129(b).
 Id. § 1129(b)(2)(A), (B) and (C).
 Id. § 1129(b)(2)(A)(ii) and (iii).
 Id. § 1129(b)(2)(A)(i)(II). The value of a secured claim is essentially equal to the value of the holder’s interest in the collateral securing the claim. Bankruptcy Code § 506(a)(1). Section 506 directs that collateral value “be determined in light of the purpose of the valuation and of the proposed disposition or use of such property” but leaves the determination of the holder’s interest largely to non-bankruptcy law, e.g., Article 9 of the Uniform Commercial Code and state mortgage law.
 Assuming that the face amounts of the obligations which the members of the class would receive under the plan are equal to the amounts of their pre-petition secured claims, the discount rate determined by this process should be essentially the same as the rate of interest those obligations will bear.
 E.g., Bank of Montreal v. Official Committee of Unsecured Creditors (In re American HomePatient, Inc.), 420 F.3d 559 (6th Cir. 2005), cert. den. 127 S. Ct. 55 (2006).
 E.g., In re 20 Bayard Views, LLC, 445 B.R. 83, 105-113 (Bankr. E.D.N.Y. 2011).
 541 U.S. 465 (2004)(plurality opinion).
 541 U.S. at 478-79 (plurality opinion)(footnote omitted).
 Id. at 474-75 & n.10.
 298 B.R. 152 (Bankr. M.D. Tenn. 2003).
 American HomePatient, 420 F.3d at 568.
 2014 Bankr. LEXIS 3926 (Bankr. S.D.N.Y. 2014), aff’d, 531 B.R. 321 (S.D.N.Y. 2015).
 The appeal also concerned the extent of the dissenting class’s senior status, the class’s entitlement to a make-whole premium and equitable mootness.
 Momentive Performance Materials Inc. v. BOKF, NA (In re MPM Silicones, L.L.C.), 2017 U.S. App. LEXIS 20596 at *25-26 (2d Cir. Oct. 20, 2017).
 Id. at *28 (footnote omitted).

References: § 1126
 § 1129
 § 1129
 § 1129
 § 1129
 § 1129
 § 1129
 § 506
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