Court Opinion

ID: 9816786
Source: CourtListenerOpinion
Date Created: 2023-09-01 03:34:44.659361+00
Date Added: 2024-06-11T18:13:10.819505
License: Public Domain

SMITH, Circuit Judge,
dissenting.
The majority’s reasoning today unnecessarily casts doubt on a long-standing, broadly-recognized, and well-justified principle arising under the Bankruptcy Code: that in order to avoid a windfall for certain creditors, claims based on future obligations should be discounted to present value before those obligations become eligible for immediate distribution. Further, the majority’s holding rests on a mischar-acterization of the disputed claims: the majority treats the claims as equivalent to principal and interest payments on a loan, when in fact the securitization and guarantee process in this case gave rise to claims that were based on non-interest-bearing future obligations. I respectfully dissent.
In adopting their characterization of the disputed claims, the majority repeats an error committed by both the Bankruptcy Court and the District Court. This mis-characterization of the disputed claims in turn led those courts to erroneously disallow the B-2 Certificate holders’ claims to the extent that they were for Oakwood Homes’ guarantees of payment for the stipulated shortfalls in the Interest Distribution Amounts. JP Morgan, however, failed to raise this issue on appeal, and therefore there is no opportunity to correct that error.
Because I believe that the Bankruptcy Court and the District Court did not otherwise err in holding that the B-2 Certificate holders’ claims should be discounted to present value, the issues actually raised on appeal do not require reversing the District Court’s judgment. Accordingly, I would affirm.
I.
The general purpose of bankruptcy is to “administer an estate as to bring about a ratable distribution of assets among the bankrupt’s creditors.” Vanston Bondholders Protective Comm. v. Green, 329 U.S. 156, 161, 67 S.Ct. 237, 91 L.Ed. 162 (1946). Section 502 of the Bankruptcy Code carries out this purpose through a two-step process. Section 502(a) provides that a creditor’s claim is deemed allowed unless a party in interest objects. 11 U.S.C. § 502(a). If a party in interest objects to *604a claim, however, “the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount.” 11 U.S.C. § 502(b). Section 502(b) also specifies several exceptions to this general rule, most relevantly that the court shall not allow a claim “to the extent that ... such claim is for unma-tured interest.” 11 U.S.C. § 502(b)(2). Traditionally, courts have collectively construed § 502(b) and § 502(b)(2) as creating two distinct tracks for analyzing claims based on future obligations: a general track for claims based on noninterest-bear-ing future obligations, and a special track for claims based on interest-bearing loan obligations.
A.
When other courts have applied the general rule in § 502(b) to claims based on future obligations, they have discounted such claims to present value. See In re CSC Indus., Inc., 232 F.3d 505, 508 (6th Cir.2001) (holding in a case involving unfunded benefit liabilities under ERISA that “the bankruptcy court must value present claims and reduce claims for future payment to present value”); In re CF & I Fabricators of Utah, Inc., 150 F.3d 1293, 1300 (10th Cir.1998) (same); In re O.P.M. Leasing Sews., Inc., 79 B.R. 161 (S.D.N.Y.1987) (discounting scheduled reimbursement due under lease); In re Loewen Group Int’l, 274 B.R. 427, 432-41 (Bankr.D.Del.2002) (discounting future payments owed on a noninterest-bearing promissory note); In re Trace Int’l Holdings, Inc., 284 B.R. 32, 38 (Bankr.S.D.N.Y.2002) (discounting deferred compensation claim). The basic purpose of this discounting practice is to “insure the relative equality of payment between claims that mature in the future and claims that can be paid on the date of bankruptcy.” In re CF & I, 150 F.3d at 1300; see also In re Trace, 284 B.R. at 38 (“Discounting is consistent with the fundamental goal of treating similar claims in the same manner ... and reflects the economic reality that a sum of money received today is worth more than the same amount received tomorrow. ... Paying the face amount on an accelerated basis would overcompensate the creditor by enabling him to receive and use the money sooner.”).
The courts have properly found the necessary textual support for this discounting practice in the general requirement of § 502(b) that the court “shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount.” See In re CSC, 232 F.3d at 508; In re CF & I, 150 F.3d at 1300; In re O.P.M., 79 B.R. at 165; In re Trace, 284 B.R. at 38-39. As the Trace Court explained, the “amount of the claim may and often does vary from the allowed amount of the claim, the portion eligible for distribution.” 284 B.R. at 39 (emphasis in original); see also In re Johns, 37 F.3d 1021, 1023 n. 1 (3d Cir. 1994) (“An ‘allowed’ claim is one that will serve as the basis for distribution.”). Pursuant to the general instruction in § 502(b), this allowed amount is determined by the value of the claim in United States currency as of the petition date, which requires discounting what were originally future payments to present value. See In re Trace, 284 B.R. at 39; see also In re O.P.M., 79 B.R. at 164 (“[A] determination of the amount of such claim cannot be distinguished from a determination of the value of the claim as of the petition date because any valuation of a claim is necessarily embodied in § 502(b) so that the amount of the claim to be allowed is properly ascertained.”) (internal quotations and citations omitted).
*605In short, because payments that were originally due in the future will become eligible for immediate distribution through the bankruptcy process, in order to avoid overcompensating such creditors, the allowed amount of such claims should be determined by discounting the future payments to present value. And the general instruction in § 502(b) provides the necessary textual support for this practice by requiring the court to “determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition.”
B.
When the contested claim is based on an interest-bearing loan obligation, however, the courts have disallowed the remaining post-petition unmatured interest payments in accordance with § 502(b)(2), but have not discounted the remaining principal payments to present value. See, e.g., In re Wyeth Co., 134 B.R. 920, 922 (Bankr.W.D.Mo.1991); see also In re Issaac, 2005 WL 3939840 at *3 (Bankr.N.D.Ill. Aug.25, 2005) (“Claims are ‘allowed’ ‘as of the date of the filing of the petition’ and may not include interest that is unmatured as of the petition date. 11 U.S.C. § 502(b)(2). Thus, a loan claim is fixed as of the filing date and includes all principal that will ever become due and interest due only on the filing date.”).20 As one court explained, § 502(b)(2) has been interpreted as accelerating the principal portion of a loan claim:
Section 502(b)(2) of the Bankruptcy Code, 11 U.S.C. § 502(b)(2), authorizes a creditor to accelerate a claim, to prove the full amount of an indebtedness, including the unmatured portion thereof. Even though only one payment may be due on a note when bankruptcy intervenes and the remaining payments may not become due until well into the future, the creditor is allowed to prove a claim for the entire balance due on the note, plus interest to the date of bankruptcy.
In re Lynch, 187 B.R. 536, 548 (Bankr.E.D.Ky.1995); see also In re Payless Cashways, Inc., 287 B.R. 482, 488 (Bankr.W.D.Mo.2002) (“[T]he legislative history to section 502(b) states that bankruptcy acts as an acceleration of the principal amount of all claims against the debtor.”); In re Auto Int’l Refrigeration, 275 B.R. 789, 813 (Bankr.N.D.Tex.2002) (“[B]ankruptcy may accelerate the Loan, however, this acceleration is only for the limited purpose of calculating Defendants’ claim in the bankruptcy.”); In re PCH Assocs., 122 B.R. 181, 198 (Bankr.S.D.N.Y.1990) (“The Note may be deemed to have been accelerated ... for the purposes of calculation of the [creditor’s] claim in these bankruptcy proceedings.”); In re Manville Forest Products Corp., 43 B.R. 293, 297 (Bankr.S.D.N.Y.1984) (“It is a basic tenet of the Bankruptcy Code that ‘[b]ankruptcy operates as an acceleration of the principal amount of all claims against the debtor.’ ”) (citations omitted).
Accordingly, the practice of allowing an interest-bearing claim subject to § 502(b)(2) without discounting the remaining principal payments to present value does not require an exemption for § 502(b)(2) cases from the discounting rule authorized by the general instruction in § 502(b). Rather, once the remaining principal payments have been accelerated, they have become presently due. Conse*606quently, the general discounting rule authorized by § 502(b) requires no further discounting of the remaining principal payments, because those payment are no longer due in the future.
This treatment of loan cases subject to § 502(b)(2) is supported by the legislative history of § 502(b)(2), which provides:
Subsection (b) prescribes the grounds on which a claim may be disallowed. The court will apply these standards if there is an objection to a proof of claim.
Paragraph (2) requires disallowance to the extent that the claim is for unma-tured interest as of the date of the petition. Whether interest is matured or unmatured on the date of bankruptcy is to be determined without reference to any ipso facto or bankruptcy clause in the agreement creating the claim. Interest disallowed under this paragraph includes postpetition interest that is not yet due and payable, and any portion of prepaid interest that represents an original discounting of the claim, yet that would not have been earned on the date of bankruptcy....
Section 502(b) thus contains two principles of present law. First, interest stops accruing at the date of the filing of the petition, because any claim for un-matured interest is disallowed under this paragraph. Second, bankruptcy operates as the acceleration of the principal amount of all claims against the debtor. One unarticulated reason for this is that the discounting factor for claims after the commencement of the case is equivalent to the contractual interest rate on the claim. Thus, this paragraph does not cause the disallowance of claims that have not been discounted to a present value because of the irrebuttable presumption that the discounting rate and the contractual interest rate (even a zero interest rate) are equivalent.
H.R.Rep. No. 95-595, at 352-54 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6307-10; S.Rep. No. 95-989, at 62-65 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5848-51.21
*607But this statement in the legislative history of § 502(b) is misleading for at least two reasons. First, the interest rate stated on the face of a debt instrument may be merely nominal, and the actual bargained-for interest rate may depend on other terms of the instrument. For example, the courts have carved out an “original issue discount” rule to reflect the fact that a discount on the purchase price of a debt instrument — the amount actually tendered by the lender to the borrower — can reflect some portion of the interest to be paid on the loan. See generally In re Pengo Indus., Inc., 962 F.2d 543 (5th Cir.1992); In re Chateaugay Coyp., 961 F.2d 378 (2d Cir.1992). An “original issue discount” occurs when the nominal interest rate on a debt instrument is set below the market interest rate for an instrument of that type, which results in a market purchase price for that instrument which is less than its face value. See In re Pengo, 962 F.2d at 546. The courts have treated this difference between the market purchase price and the face value of such instruments as “in the nature of additional interest,” and consequently have considered any such unamortized original issue discounts as claims for unmatured interest within the meaning of § 502(b)(2). See id. Again, the courts' justify this rule on the basis of the instructions in § 502(b) and § 502(b)(2) and in light of the “economic reality” of the underlying transaction. See id.
Another notable problem with this statement in the legislative history is that the interest rate on debt instruments typically will reflect not only a general discounting rate, but also other factors, most prominently the risk that the debtor will not fulfill his payment obligations as per the loan agreement. See Till v. SCS Credit Corp., 541 U.S. 465, 474, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004) (observing that an interest rate compensates a creditor for the fact that “[a] debtor’s promise of future payments is worth less than an immediate payment of the same total amount because the creditor cannot use the money right away, inflation may cause the value of the dollar to decline before the debtor pays, and there is always some risk of nonpayment.”). In other words, typically there is a difference between the interest rate on a loan and the contemporaneous risk-free discounting rate, and this difference reflects in large part a premium that the lender has required the borrower to agree to pay in order to compensate the lender for the risk of nonpayment.22
*608Accordingly, the disallowance of claims to the extent that they are for unmatured interest payments pursuant to § 502(b)(2) carries out at least two distinct financial operations. First, to the extent that a portion of the interest rate reflects the time value of money, the rule in § 502(b)(2) does in fact carry out an operation equivalent to the discounting that the courts would otherwise have performed pursuant to the general instruction in § 502(b). Second, to the extent that a portion of the interest rate contains a premium that reflects the risk of nonpayment associated with the loan, the rule in § 502(b)(2) acts to disallow the lender’s claim to the extent that it contains this premium. This second operation is economically justifiable precisely because this premium was conditional: the essence of the bargain struck by the lender was that the lender would receive this premium if the debtor made his payments as provided by the loan agreement, but that the lender would fail to receive this premium in the case of nonpayment. Accordingly, it is economically appropriate for the Bankruptcy Code to disallow claims to the extent that they contain such a premium, because the lender’s expectation of receiving this premium was conditioned on payment of the loan as provided by the agreement.23
Consequently, I agree with the majority’s conclusion that bankruptcy courts are not authorized by § 502(b)(2) to “double discount” claims. That is because the traditional construction of § 502(b)(2) authorizes Bankruptcy Courts to accelerate any remaining principal payments in cases governed by § 502(b)(2), and the discounting of future obligations authorized by the general instruction in § 502(b) is in fact already embedded as one of the operations carried out by the disallowance of unma-tured interest pursuant to § 502(b)(2). But the rule in § 502(b)(2) is not simply equivalent to a discounting rule. Rather, in the course of disallowing unmatured interest payments, the rule in § 502(b)(2) also carries out additional operations, most notably the disallowance of any conditional interest rate premium associated with the risk of nonpayment.
II.
Although the majority nominally declines to reach whether § 502(b) ever permits discounting, the majority’s reasoning does not appear to be limited to claims based on interest-bearing loan obligations treated under § 502(b)(2). Consequently, the majority’s reasoning unnecessarily undermines the traditional and proper construction of the Bankruptcy Code.
The majority explicitly states that “[w]e do not hold here that 11 U.S.C. § 502(b) never authorizes discounting a claim to present value....” Maj. Op. at 598-599 (emphasis in original). Nonetheless, such a conclusion appears to be the logical implication of the majority’s reasoning.
*609For example, the majority states, “We are not convinced that a plain reading of § 502(b) supports the Bankruptcy Court’s conclusion.” Maj. Op. at 597. The majority distinguishes the term “amount” from the term “value,”24 and argues that:
[Wjhere the Bankruptcy Code intends a court to discount something to present value, the Code clearly uses the term “value, as of’ a certain date. Many sources support the use of the term “value” for this purpose, none support U.S. Bank’s contention that “amount ... as of’ also implies a present value calculation.
Maj Op. at 597 - 598 (citations omitted) (emphasis in original). The majority concludes: ‘Where the Code speaks of discounting cash streams to present value, it speaks in terms of ‘value, as of ‘ a certain date. It does not use ‘amount ... as of.’ ” Maj. Op. at 598.25 This textual argument is not limited by its terms to claims based on loan obligations.
Additionally, the majority “decline[s] to follow the approach” of the court in Loewen, noting that “Loewen is, of course, not binding on this Court or the District Court.” Maj. Op. at 601 & n. 17. The majority does state that Loewen is distinguishable because the promissory notes in that case were not interest-bearing. Maj. Op. at 601 n. 17. But the majority further states, “The Loeiven court determined that 11 U.S.C. § 502(b) ‘clear[ly] and unambig-uousPy] required discounting to present value ... a contention we have already rejected above.” Id. In light of the majority’s broad reasoning with respect to the text of § 502(b), this sweeping statement also goes beyond the more limited principle that § 502(b) does require additional discounting in cases subject to the rule in § 502(b)(2).
Finally, the majority states that “[t]he general rule of both the Bankruptcy Code and § 502(b) ... is acceleration to the date of filing of the petition for the purpose of filing [sic] a claim, not the lack of acceleration.” Maj. Op. at 602 (emphasis in origi*610nal). If that was in fact a proper construction of § 502(b) in general, rather than merely § 502(b)(2) in particular, then logically no claims would be subject to discounting, because all claims would be presently due.
Collectively, these statements go farther than necessary if we are merely holding that “double discounting” is not allowed in cases that are subject to the rule in § 502(b)(2). And as the majority itself notes, insofar as the majority’s reasoning does not appear to depend on the future obligations taking the form of interest-bearing loan obligations, the majority’s reasoning places our court at odds with the reasoning of all of the other courts to address these issues. See Maj. Op. at 599 n. 13.
In light of the basic purposes of the Bankruptcy Code and the general instruction in § 502(b), I would adopt today the traditional view that § 502(b) authorizes discounting claims based on future obligations to present value. I would also affirm the standard practice of not discounting the remaining principal payments in cases subject to § 502(b)(2), because such discounting in effect has already occurred through one of the operations embedded in the rule in § 502(b)(2), and § 502(b)(2) implicitly operates to accelerate the remaining principal payments.26
III.
In light of this traditional construction of § 502(b) and § 502(b)(2), the courts must determine whether a claim for future payments should be treated under the general discounting rule, or rather under the special rule created by § 502(b)(2). In this case, a careful examination of the disputed claims indicates that the Bankruptcy Court and the District Court erred by treating these claims as interest-bearing loan obligations covered by the special rule in § 502(b)(2), and the majority today repeats this error by adopting the same characterization of the disputed claims.
The manifest purpose of the securitization and guarantee process in this case was to convert the original mortgage loans into a substantially different form of financial instrument. The terms of the Pooling and Service Agreements make it clear that rather than loaning funds to the Trusts, the certificate holders were instead purchasing a right to be paid from the trust’s assets according to the specified schedules.27 Indeed, the Agreements described *611the payments due to the certificate-holders as “Principal Distribution Amounts” and “Interest Distribution Amounts.” These terms imply that the Trusts were not making principal and interest payments on loans granted to the Trusts by the certificate holders. Rather, these terms imply that the Trusts were instead distributing payments derived from the Trusts’ revenues to the certificate holders. The fact that the Trusts’ underlying revenue streams from the mortgages were divisible into principal and interest portions, and the fact that the scheduled distributions to the certificate holders reflected this underlying division, does not imply that the Trusts’ payments to the certificate holders were themselves in the nature of principal and interest payments.
Further, once Oakwood Homes guaranteed the payments on the B-2 Certificates, the joint obligation of the Trusts and Oak-wood Homes to make the scheduled payments was not conditioned on the Trusts receiving the necessary revenues from the mortgages held by the trust. The Limited Guarantee thus further distinguished the payments due to the B-2 Certificate holders from the underlying interest and principal payments owed to the Trusts. Cf In re Wisconsin Engine Co., 234 F. 281, 284 (7th Cir.1916) (holding that even though payments on promissory notes were “expressed in terms of royalties,” they were not expressed as conditioned upon such royalties being earned, and thus were not royalty payments). In Wisconsin Engine, the creditor owned certain patents, and granted licenses for those patents to the debtor. See id. at 282-83. The license agreement provided for a royalty, but the license agreement also in effect securitized and guaranteed the royalty payments for the first three years. Id. The agreement provided for a minimum royalty payment of $22,500 for the first three years, and further provided that
as evidence or prepayment of such sum the licensee will deliver to the licensor, at the time of signing this agreement, two sets of negotiable promissory notes of equal amounts for the aggregate sums of twenty-two thousand five hundred dollars ($22,500) ... payable at the following times and in the following amounts: Five thousand dollars ($5,000) shall be payable at the end of one year from the date hereof; ten thousand dollars ($10,000) at the end of two years from the date hereof; and seven thousand five hundred ($7,500) at the end of three years from the date hereof.
Id. After the licensee entered bankruptcy, the Seventh Circuit allowed a claim on one of the two sets of these promissory notes (a set of three notes for $2,500, $5,000, and $3,750 respectively), for a total of $10,537.51, their discounted value as of the time bankruptcy proceedings began. Id. at 282, 284.
The Seventh Circuit analyzed the relationship between the payments due on the promissory notes and the underlying royalty payments as follows:
In our judgment, the indebtedness represented by the notes was the consideration for the grant of the exclusive license. It was expressed in terms of royalties, and properly so, because, in so far as royalties up to that amount would be earned under the agreement, payment of the notes would cancel any obli*612gation in respect thereto. But it was not expressed as conditioned upon such royalties being earned. The parties contemplated the possible cancellation of the license before the expiration of three years because of licensee’s breach of the agreement or its insolvency. Nevertheless the obligation to pay the $22,000 [sic] remained.
There is no guaranty that, if royalties shall in fact become due, they shall amount to at least $22,500 for the period; there is an absolute undertaking that this amount shall be paid.... [T]he provision that notes should be given and that they should be negotiable is additional evidence tending to resolve any doubt as to the intention of the parties that the amount therein stated was to be payable in any event. That the notes were not in fact sold is of no moment. The parties necessarily contemplated that they might be negotiated.
Id. at 284. In short, the Seventh Circuit recognized that although the payment obligations were “expressed in terms of royalties,” once those obligations had been converted into guaranteed and negotiable financial instruments, they should be treated as such by the Bankruptcy Code.
This same principle should apply in our case. Although payments distributed by the Trusts are “expressed in terms” of “Principal Distribution Amounts” and “Interest Distribution Amounts,” in reality the B-2 Certificate holders were like the holders of the negotiable promissory notes in In re Wisconsin Engine: they were guaranteed a future set of payments, and the payments owed to the B-2 Certificate holders were not conditioned on the Trusts acquiring the revenue from the underlying mortgages and then distributing it to the certificate holders. Indeed, creating such a financial instrument was the manifest purpose of the securitization and guarantee process with respect to the B-2 Certificates.
In short, the B-2 Certificate holders’ claims against Oakwood Homes were not for principal and interest due to them on a loan that they had made to Oakwood Homes. Indeed, these claims were not even for guarantees on a loan that the certificate holders had made to a third party, because the certificate holders did not in fact loan money to the Trusts. Rather, the certificate holders had a claim against Oakwood Homes that was equivalent to any other non-interest-bearing future obligation, even though a portion of this obligation was expressed as a guarantee of payment for an “Interest Distribution Amount.”28
IV.
Consequently, the Bankruptcy Court’s error was not in discounting Oakwood Home’s future guarantees of payment for the Principal Distribution Amounts to present value in accordance with the general instruction in § 502(b). Rather, the Bankruptcy Court’s error was in applying the rule in § 502(b)(2) to this case and disallowing the B-2 Certificate holders’ claims to the extent that they were for Oakwood Home’s guarantees of payment on the Interest Distribution Amounts. That is because this portion of the B-2 *613Certificate holders’ claims was not in fact for unmatured interest within the meaning of § 502(b)(2).
In light of the multiple operations embedded in the rule in § 502(b)(2), the consequences of this error were not inconsequential. Because the B-2 Certificate holders were not directly entitled to payments from some specific set of mortgages, they had not bargained for a risk premium in the form of higher mortgage interest rates. Indeed, the tranch system established by the Pooling and Service Agreements effectively transferred some of the risk associated with the possible nonpayment of the mortgages from the higher priority certificates to the lowest priority certificates — most notably to the B-2 Certificates — without any compensating increase in the Interest Distribution Amounts due to the B-2 Certificate holders.
The limited guarantee of payment supplied by Oakwood Homes to the B-2 Certificate holders was specifically intended to facilitate the sale of the B-2 Certificates by eliminating this concentrated risk. And because Oakwood Home’s guarantee of the B-2 Certificate’s scheduled payments was not in the form of a loan, nor even in the form of a guarantee on a loan, nowhere in this transaction did the B-2 Certificate holders bargain for any interest rate premium associated with the risk that Oak-wood Homes itself would fail to make the payments required by the terms of the Limited Guarantee.29
*614When the Bankruptcy Court erroneously applied § 502(b)(2) to disallow the claims to the extent that they were for Oakwood Home’s guarantees of payment on the Interest Distribution Amounts, it effectively performed not just a discounting operation, but also an operation to eliminate a hypothetical interest rate premium. But because the B-2 Certificate holders had not in fact bargained for and received such an interest rate premium, applying the rule in § 502(b)(2) to their claims unjustifiably reduced the allowed amount of their claims to the extent that it went beyond discounting their claims to present value.
In other words, by erroneously applying § 502(b)(2) to this case, the Bankruptcy Court and the District Court treated the B-2 Certificate holders as having made a losing bet on Oakwood Homes making its payments as per the guarantee agreement. But because the B-2 Certificate holders had not bargained for an interest rate premium associated with that risk, they could not have won any such hypothetical bet in the event that Oakwood Homes fulfilled its agreement. Accordingly, this error by the Bankruptcy Court and the District Court had the effect of imposing on the B-2 Certificate holders the consequences of losing a bet, a bet that they did not in fact agree to make.30
V.
Due to the procedural posture of this case, however, it is not possible for us to remand the case to the District Court with an instruction to reverse the Bankruptcy Court’s judgment to the extent that the Bankruptcy Court disallowed claims based on Oakwood Home’s guarantees of payment on the Interest Distribution Amounts. That is because JP Morgan chose not to raise this portion of the Bankruptcy Court’s judgment as an issue in this appeal, and instead appealed only the Bankruptcy Court’s subsequent decision to discount the remainder of the B-2 Certificate holders’ claims to present value.
Of course, in light of the traditional construction of § 502(b) and § 502(b)(2), U.S. Bank inconsistently argued below: (1) that the claims in this case should be treated as interest-bearing obligations for the purpose of disallowing what the parties have described as the interest portion of the claims pursuant to § 502(b)(2); and (2) that the claims should not be treated as interest-bearing obligations for the purpose of accelerating what the parties have described as the principal portion of the claims. Nonetheless, as a result of their errors, neither the Bankruptcy Court nor the District Court compelled U.S. Bank to choose between these inconsistent theories of the disputed claims. Accordingly, U.S. Bank remained free to argue on the basis of either theory of the disputed claims during this appeal.
Before us, U.S. Bank correctly argued that the future obligations in this case were not in the nature of loan payments and therefore should be discounted to present value. Accordingly, I would hold that we are bound to affirm the District *615Court’s judgment on this appeal. That is because the Bankruptcy Court did not err with respect to the sole issue presented on appeal, and JP Morgan chose not to appeal the issue with respect to which the Bankruptcy Court did in fact err.31
VI.
In sum, to the extent that the majority’s reasoning implies that discounting non-interest-bearing future obligations to present value is contrary to the text of the Bankruptcy Code, I believe that it unnecessarily and unjustifiably undermines the traditional construction of § 502(b). Further, in my view the majority has repeated the error of the Bankruptcy Court and the District Court by accepting JP Morgan’s position on appeal that Oakwood Homes’ guarantees of payment to the B-2 Certificate holders should be treated as if they were principal and interest payments. In a world of increasingly complex financial instruments, it is vital for the courts to recognize that a series of agreements can transform what was originally a loan into a very different financial vehicle — and indeed that effecting such a transformation can be one of the very purposes of such agreements. The courts in turn should apply the Bankruptcy Code, including § 502(b) and § 502(b)(2), in light of the actual economic bargains defined by such financial instruments. Only then can the courts carry out one of the core purposes of the Bankruptcy Code — to reliably and fairly distribute the bankrupt’s assets among its creditors.
For the reasons stated above, I respectfully dissent.

. Although courts typically have not specified that they were not discounting the principal payments to present value, U.S. Bank was not able to identify any other case in which a court disallowed regularly-scheduled interest payments on a loan obligation pursuant to § 502(b)(2) and then discounted the remaining principal payments to present value.

. The majority cites this legislative history for the proposition that "[t]he general rule of both the Bankruptcy Code and § 502(b) ... is acceleration to the date of filing of the bankruptcy petition, for the purpose of filing a claim' — not the lack of acceleration.” Maj. Op. at 602 & n. 19 (emphasis in original). I find persuasive, however, the reasoning of the In re O.P.M. Court, which concluded that because the passage in the legislative history cited by the majority "refers to the policy of disallowing claims pursuant to § 502(b)(2) for unmatured interest ... it is evident, when read in context, that the cited paragraph deals with that particular subsection of § 502(b).” In re O.P.M., 56 B.R. at 686 n. 4; see also In re Loewen, 274 B.R. at 433 n. 15 ("[W]hen placed in its proper context, it is apparent that this snippet of legislative history specifically refers to the policy of disallowing claims for unmatured interest under § 502(b)(2).... Although ... other courts have relied upon the legislative history of § 502(b) for guidance, those courts have done so in the process of explaining why claims for unmatured interest and/or original issue discount are disallowed pursuant to § 502(b)(2).”) (citations omitted). This conclusion is further buttressed by the reference in this passage to accelerating "the principal amount” of a claim, a term that would ordinarily have meaning only if the claim in question was based on a loan obligation subject to the operation of § 502(b)(2).
Finally, I do not agree with the majority that § 502(b)(6) and § 502(b)(7) imply that "[t]he default state of all ‘amounts' under § 502(b) subsections other than subsections (6) and (7), then, is acceleration.” Maj. Op. at 603. Rather, § 502(b)(6) simply provides that "the claim of a lessor for damages resulting from the termination of a lease of real property” cannot exceed "the rent reserved by such lease, without acceleration, for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of such lease ... [plus] any unpaid rent due *607under such lease, without acceleration....” See § 502(b)(6). Accordingly, the reference to acceleration in § 502(b)(6) is required by the possibility that the termination of a lease would result in the acceleration of rent payments through the application of some damages rule or provision, not because § 502(b) itself contains a default acceleration rule. Similarly, § 502(b)(7) simply provides that "the claim of an employee for damages resulting from the termination of an employment contract” cannot exceed "the compensation provided by such contract, without acceleration, for one year ... [plus] any unpaid compensation due under such contract, without acceleration....” See § 502(b)(7). Again, as with § 502(b)(6), the reference to acceleration in § 502(b)(7) simply negates the possibility that a damages rule or provision would accelerate compensation in the event of a termination of an employment contract, and therefore this language in § 502(b)(7) does not imply that there is a default acceleration rule in § 502(b).

. In that sense, lenders typically take out a series of "bets” on risky borrowers. If a given borrower makes the payments as per the loan agreement, the lender wins the bet on that borrower, and the lender’s winnings take the form of the interest rate premium that has been paid by the borrower. Similarly, if a borrower fails to make the payments as per the loan agreement, the lender loses the bet. If a lender has properly assessed the risks associated with its various bets, the interest premiums realized in the cases where *608the lender wins these bets will compensate the lender for the lost payments in the cases where the lender loses these bets.

. In other words, the rule in § 502(b)(2) in part reflects the fact that when the debtor enters bankruptcy, the lender has lost his bet on the debtor, and therefore the lender is not entitled to claim payment of the premium that he would have received if he had instead won his bet on the debtor. Indeed, to allow such a claim to the extent that it reflected this premium would be overcompensating the lender, because lenders typically receive their compensation for losing such bets from other loans, namely those in which the lenders made similar bets and actually won (in that the borrower made the scheduled payments, and the lender realized the associated interest rate premium).

. The majority defines "value” as "the monetary worth or price of something; the amount of goods, services, or money that something will command in an exchange.” Maj. Op. at 597 n. 8 (emphasis added) (citation omitted). The presence of the term "amount” in their definition of "value” severely undermines the majority's apparent conclusion that "amount” and "value” cannot refer to the same thing. Moreover, the full phrase that we are construing is “the amount of such claim in lawful currency of the United States as of the date of the filing of the petition.” 11 U.S.C. § 502(b). Construing this full phrase as referring to the "value” of the claim is thus supported by the opinion's own definition of "value,” because § 502(b) requires the court to determine "the amount of ... money” (namely U.S. currency) which should be "exchanged” (immediately distributed by the estate to the creditor) as the result of allowing the claim.

. An alternative explanation for this variance is that § 502(b) does not always require discounting to present value, but rather simply authorizes it in certain circumstances. For example, to the extent that § 502(b)(2) provides an alternative mechanism for determining the allowed amount of claims based on interest-bearing loan obligations — namely, by disallowing the interest payments but accelerating the principal payments— § 502(b) would not require further discounting. See Part I.B, supra. More generally, § 502(b) would not require discounting if the claim was not based on a future obligation, but rather was based on a payment that was presently or past due. In short, the fact that § 502(b) generally contemplates many different types of claims, and that different methods for determining "the amount of such claim[s] in lawful currency of the United States as of the date of the filing of the petition” may apply to different claims, provides a sufficient explanation for why the general instruction of § 502(b) is not written so as to always require discounting.

. Accordingly, I agree with the majority that an erroneous double discount has been applied to this claim. However, the mere fact that this double discounting is erroneous does not tell us which of the two discounts was the erroneous discount. In my view, the erroneous discount resulted from the application of § 502(b)(2) to this claim, when in fact no part of the claim was actually for unmatured interest within the meaning of § 502(b)(2). See Part IV, infra. In contrast, discounting this claim to present value was not erroneous, because it was based on payments that would not have occurred until the future if not for the claim becoming immediately payable due to the bankruptcy. See Part I.A, supra. Both of these conclusions — that no part of the claim was for disallowable unmatured interest, but that the entire claim should be discounted to present value — are derived from my analysis of the nature of the financial instrument that gave rise to the claim. See Part III, infra. But as described in Part V, infra, we cannot correct the error which led to double discounting in this case because the claimants failed to appeal the erroneous discount, and only appealed the nonerroneous discount. So, despite the fact that an erroneous double discount was applied to this claim, I would hold that we have no opportunity to correct that error, given the nature of this appeal.

. Notably, the "tranch” system adopted by the Trusts, which set a hierarchical priority system for distributing the available funds among the different classes of certificate holders, demonstrates that the Trusts were not *611simply holding specific sets of mortgages for the benefit of corresponding sets of certificate holders. Rather, the Trusts were indeed first "pooling” the revenues received from the mortgages, and then distributing funds from this general pool to the different certificate holders according to the schedules and priority system defined in the Pooling and Service Agreements.

. In that sense, it should not be relevant that the securities in this case were partially backed by the revenue from the mortgages held by the Trusts, rather than the revenue from any other sort of asset that a trust could hold. As demonstrated by Wisconsin Engine, the securitization and guarantee process in this case could be applied to many different types of assets, and the application of the Bankruptcy Code to a guarantor's obligations in such cases should not depend on the nature of the underlying assets held by the Trusts.

. In cases where a lender bargains for interest payments on a guaranteed loan, it may be reasonable to assume that the lender has bargained for an interest rate premium associated with the combined risk of the borrower and the guarantor jointly failing to make payments on the loan as per their agreements. Accordingly, if in such a case the borrower fails to make their payments and the guarantor petitions for bankruptcy, it may be economically justifiable to treat the guarantor’s future obligations to the lender as if they were interest-bearing loan obligations within the meaning of § 502(b)(2). See Maj. Op. at 594 (concluding that Oakwood Homes, as the putative guarantor on a loan, should be treated as being in the "exact same position as the Trusts, the primary obligors, with respect to the obligation to make these principal and interest payments”). In other words, in such a case the lender presumably has again made a "bet” — namely that either the borrower or the guarantor would make the payments as per their agreements — and the lender also presumably bargained for compensation for the possibility of losing this bet in the form of the possibility of realizing an interest rate premium in the event that the lender won this bet.
We need not reach this issue today, however, because the B-2 Certificates were not in fact loans to the Trusts, and thus Oakwood Homes’ guarantees of payment on the B-2 Certificates were not guarantees on loans, and the B-2 Certificate holders were not lenders who had bargained for an interest, rate premium on a loan which would reflect in part the risk of Oakwood Homes' nonpayment on its guarantee. Indeed, these findings are confirmed by the simple fact that parties described by the majority as the "primary obli-gors” — the Trusts — will not in fact become insolvent as a result of the stipulated revenue shortfalls, and the B-2 Certificate holders will not have a claim against the Trusts for a default on their obligations under the Pooling and Service Agreements. Rather, thr; possibility of such a shortfall in revenues was expressly contemplated and provided for in the Pooling and Service Agreements, and the B-2 Certificate holders knowingly purchased low-priority certificates. Similarly, the B-2 Certificate holders will have no claim for direct payment from the purchasers who default on their mortgages, because they did not bargain for and receive the right to such direct payments. Accordingly, this is not a case in which a lender has a claim against both a borrower and guarantor who have failed to make payments, because the B-2 Certificate holders will have no such claim against either the Trusts or the underlying purchasers as a result of the stipulated shortfalls. Again, these facts simply confirm that due to the securitization process, the B-2 Certificate holders were not lenders, and Oakwood Homes did not provide the B-2 Certificate holders with a guarantee on a loan.

. The majority suggests that these considerations are "irrelevant” because the "interest rate premium reduction was not appealed by JP Morgan.” Maj. Op. at 600 n. 15. I agree that we cannot correct this error because JP Morgan failed to appeal this decision by the Bankruptcy Court and the District Court. See Part V, infra. Nonetheless, these considerations are relevant because they demonstrate the differences between the error which in fact occurred in this case (the unwarranted application of § 502(b)(2) to the claims) and the nonerroneous decision which the majority seeks to correct (the discounting of the claims to present value). In other words, these two possible errors are not interchangeable, and we should not treat them as such on appeal.

. The majority expresses "confusion” about this conclusion, observing that “the courts below determined that legally, it was permissible to discount a claim to present value after applying § 502(b)(2) to disallow any post-petition interest.” Maj. Op. at 595 n. 5. I agree that the Bankruptcy Court and the District Court erred by concluding that double discounting was permissible under § 502(b)(2) and § 502(b). See Note 7, supra. Nonetheless, the mere fact that the Bankruptcy Court and the District Court erred in their legal reasoning does not mean that we should reverse the result. See Helvering v. Gowran, 302 U.S. 238, 245, 58 S.Ct. 154, 82 L.Ed. 224 (1937) (“In the review of judicial proceedings the rule is settled that, if the decision below is correct, it must be affirmed, although the lower court relied upon a wrong ground or gave a wrong reason.”); Brumfield v. Sanders, 232 F.3d 376, 379 n. 2 (3d Cir.2000) (" 'An appellate court may affirm a result reached by the District Court on different reasons, as long as the record supports the judgement.’ ”) (citation omitted). Here, the record supports a determination that the claims in question were not for principal and interest within the meaning of § 502(b)(2), and therefore that the claims were properly discounted to present value. See Part III, supra. Accordingly, the fact that the Bankruptcy Court and District Court reached the same conclusion after first determining that the claims in question were for principal and interest within the meaning of § 502(b)(2) merely means that they reached the right conclusion after engaging in erroneous reasoning. In contrast, their other conclusion — that the claims should be disallowed to the extent that they were for the guarantees of the Interest Distribution Amounts — was not supported by the record, and I would not have affirmed that decision on appeal. See Part IV, supra. But that decision has not been appealed, and therefore we are left considering only a conclusion that is supported by the record, albeit not by the erroneous reasoning of the Bankruptcy Court and the District Court.