Opinion ID: 658305
Heading Depth: 2
Heading Rank: 2

Heading: Classification of Others' Indemnity Claims

Text: 43 LTV entered into safe-harbor leases with a number of companies, some or all of which have asserted indemnity claims similar to those asserted by Frito-Lay. The Plan, which classifies Frito-Lay's indemnification claims as unsecured and impaired, classifies all of the other parties' similar claims as unimpaired. The justification offered for this disparity is that all of the indemnity claims--except Frito-Lay's--were secured by letters of credit or surety bonds issued by third-party financial institutions that subsequently furnished the estate with debtor-in-possession financing. For convenience, we will refer to these third-party letters of credit and surety bond arrangements collectively as guaranties. 44 Section 1122(a) of the Bankruptcy Code provides that a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class. 11 U.S.C.A. Sec. 1122(a) (1988). Frito-Lay challenges the determination by the bankruptcy court and by the district court that the Debtors had a rational basis for affording priority to the secured indemnity claims and for classifying them separately from Frito-Lay's unsecured claims. Because the relief Frito-Lay seeks is to gain priority treatment for itself, this issue is not moot on appeal for substantially the same reasons stated in our discussion of Frito-Lay's indemnity claims. 45 LTV's safe-harbor leases with companies other than Frito-Lay provide that throughout the duration of the agreements LTV must maintain guaranties in an amount equal to LTV's maximum potential indemnity obligations. Failure to renew those guaranties constitutes an event of default, entitling the secured lessors to accelerate and to draw upon the guaranties directly for the full amount of LTV's potential indemnification obligations. The guaranties thus assure that the secured lessors will be paid the full indemnity due under their safe-harbor leases, whether their claims are classified in the Plan as impaired or as unimpaired. Frito-Lay contends that the secured lessors cannot be treated as unimpaired because Frito-Lay suffered its tax loss in the same way and for the same reasons as did the other lessors and because the other lessors cannot be treated as secured because they hold none of LTV's property as collateral. Although it is true that the other lessors are secured by obligations of third-party financial institutions, the debtors-in-possession agreed post-petition to reimburse those issuers fully for any draw-downs in order to induce the same issuers to provide the estate with hundreds of millions of dollars in debtor-in-possession financing. In this way, the Debtors were and continue to be obliged to reimburse the issuers of the guaranties 100 cents on the dollar for any draw-downs arising from LTV's secured indemnification obligations. That arrangement was approved by the bankruptcy court in 1987, after a hearing on full notice to all interested parties. We therefore agree with the bankruptcy court and the district court that the discriminatory terms of the Plan attacked by Frito-Lay have a rational basis. 46