Opinion ID: 2954553
Heading Depth: 2
Heading Rank: 4

Heading: Chase’s Claim for Post-Petition Interest.

Text: On August 2, 2011, Chase filed a post-petition claim for payment of principal, interest, and other charges pursuant to section 506(b). 9 Chase asserted it was oversecured 10 and entitled to post-petition interest pursuant 7 NuStar initially paid $37,146,000.02 to the Trustee and placed $8,118,562.84 in escrow, totaling $45,264,562.86 before the Working Capital Adjustment. All escrowed funds were ultimately released to the Trustee, and NuStar paid an additional $2,783,083.63, for an adjusted total purchase price of $48,047,646.49. 8 In the Committee’s view, if we begin with the $41 million base price and subtract $1.9 million for the Adjacent Real Property and $1.3 to $4 million for the Elmendorf Tank Farm, we are left with $35.4 million to $38.1 million to allocate to the Refinery. 9 11 U.S.C. § 506(b) provides: To the extent that an allowed secured claim is secured by property the value of which, after any recovery . . . is greater than the amount of such claim, there shall be allowed to the holder . . . interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement . . . under which such claim arose. 10 A creditor is “oversecured” where the value of its secured collateral exceeds the amount of its secured claim. 7 Case: 14-50046 Document: 00513196170 Page: 8 Date Filed: 09/16/2015 No. 14-50046 to the terms of the Chase Security Agreement, 11 which provided for postpetition interest to accrue at the default rate. 12 Applying that rate, Chase sought “up to $6 million” in post-petition interest. An oversecured creditor is entitled to post-petition interest on its claim only “to the extent that such interest, when added to the principal amount of the claim, [does] not exceed the value of the collateral.” 13 Accordingly, Chase argued that the combined value of its liens in the proceeds from the sale to NuStar, the proceeds from the Working Capital Assets, the insurance proceeds from the Truck Rack Fire, and the ATI Receivables exceeded the amount of its pre-petition claim by up to $6 million. As an alternative remedy, Chase filed an administrative expense claim against the AGE estate seeking $14.7 million for failure to adequately protect Chase’s liens in the event that the bankruptcy court found Chase undersecured. On August 3, 2011, the Committee challenged Chase’s oversecured status in a motion to value Chase’s secured collateral under section 506. The Committee included a proposed order setting the value of Chase’s collateral at $39 million and objected to Chase’s claim for post-petition interest and its alternative diminution claim. Although the Trustee disputed the absolute extent to which the value of Chase’s secured collateral exceeded the amount of its pre-petition claim, the Trustee did not dispute that the collateral value 11 See In re Laymon, 958 F.2d 72, 75 (5th Cir. 1992) (“[W]hen an oversecured creditor’s claim arises from a contract, the contract provides the rate of post-petition interest.”). 12 See In re Southland Corp., 160 F.3d 1054, 1059–60 (5th Cir. 1998) (discussing postpetition interest at a default rate under section 506(b) and holding that “a default interest rate is generally allowed, unless ‘the higher rate would produce an inequitable . . . result’” (alteration in original) (quoting In re Laymon, 958 F.2d at 75)). The Committee does not contest the equity of the default rate here, and therefore we do not address it. 13 United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 372 (1988); see 11 U.S.C. § 506(a)–(b). For instance, if Chase were oversecured by $4 million, it would be entitled to a post-petition claim of $4 million under section 506, even though the Chase Security Agreement provided for up to $6 million in post-petition interest. 8 Case: 14-50046 Document: 00513196170 Page: 9 Date Filed: 09/16/2015 No. 14-50046 exceeded the amount of the pre-petition claim as a relative matter, thus making Chase oversecured. The Trustee requested permission to pay the $40.2 million principal balance of Chase’s pre-petition claim from cash on hand. The bankruptcy court granted permission and by its order preserved Chase’s $6 million claim for post-petition interest but did not address the Motion to Value or the Claim Objection.