Leveraging Secured Lender Bankruptcy Cramdown Rules and Related Valuation Issues

Description

Cramdown occurs when a plan is confirmed without the consent of a dissenting class of creditors. The Bankruptcy Code requires debtors to satisfy certain requirements to obtain confirmation when a class of creditors dissents. This CLE will address the statutory framework that applies, and must be addressed, in connection with a plan of reorganization.

Concerning secured lenders, debtors may seek to provide deferred cash payments equal to the present value of the secured claim (i.e., the collateral securing repayment of the debt), a sale of collateral subject to a security agreement or nonconsensual lien, or otherwise provide the lender with the indubitable equivalent of its claim. This CLE will further address considerations when a debtor attempts to extend the maturity of debt, effectively providing it with modified obligations that will generate more free cash flow.

Because the value of the claim is paid out over time, the rate of interest that the secured creditor must receive to ensure the payments equal the amount of the claim is a critical component of the plan. While many courts have applied the Till "prime-plus" formula, uniformity among all jurisdictions has proved elusive. The Second Circuit, in Materials Inc. v. BOKF, NA (In re MPM Silicones L.L.C.), 2017 BL 376794 (2d Cir. Oct. 27, 2017), required notes to bear market rate if an "efficient market" exists.

Listen as our authoritative panel of bankruptcy attorneys discusses the mechanisms establishing the proper cramdown interest rate for secured lenders and other debt instruments, practical strategies for secured lenders to defeat the cramdown plan, and how to argue the appropriate cramdown interest rate.