Unsecured Creditors: Risk and Cramdown Rates (Part II of II) This is the second of a two-part article, read Part I here. In October 2017, the Second Circuit Court of Appeals handed down its decision on cramdown interest rates in the matter In re: MPM Silicones, LLC. This decision has already stirred a great deal of discussion regarding cramdown interest rates to be paid secured creditors in Chapter 11 bankruptcy matters. Numerous articles have appeared on-line discussing the impact of this decision. These articles follow in a long line of literature on cramdown hearings and secured creditors. Conversely, little has…
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Unsecured Creditors: Risk and Cramdown Rates (Part I of II) This is the first of a two-part article. In October 2017, the Second Circuit Court of Appeals handed down its decision on cramdown interest rates in the matter In re: MPM Silicones, LLC. This decision has already stirred a great deal of discussion regarding cramdown interest rates to be paid secured creditors in Chapter 11 bankruptcy matters. Numerous articles have appeared on-line discussing the impact of this decision. These articles follow in a long line of literature on cramdown hearings and secured creditors. Conversely, little has been written about impaired…
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Why the Choice Between Prime and Treasury Rate Matters Many bankruptcy practitioners have focused on the recent decisions in Momentive[1] that forced secured creditors to refinance prepetition loans at below market interest rates. Most of these practitioners’ publications focus on the courts’ findings and the potential implication on future matters. However, three interesting questions are not addressed in most (if any) of these publications.
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The Myth of Efficient Market Cramdown Rate In December 2014, the American Bankruptcy Institute issued its Final Report and Recommendations of the Commission to Study the Reform of Chapter 11. The Commission was comprised of 22 professionals. The group included attorneys, academics, financial advisers, and a former bankruptcy judge. After over two years of work, the Commission made more than 200 recommendations to enhance the Chapter 11 process and provide a more efficient, less costly path for smaller businesses seeking bankruptcy. In this article, Dr. Needham discusses the origin of the Commission’s purpose, the recommendations and the impact of the…
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A Case Study, Part 2 of 2 In this second part of the article, Dr. Allyn Needham examines post-Till cases from the northern and western districts of Texas, highlights the problems encountered using the Formula Approach, and tests whether the Contract Approach may have provided a better approach and reduced the incidence of litigation where a cramdown is proposed. Ultimately, Dr. Needham proposes that despite the problems presented by the Formula Approach, the Contract Approach is not a panacea for Chapter 11 bankruptcy matters. Business valuators practicing in this area must understand case precedent and recognize the limits of the…
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A Case Study, Part 1 of 2 In the Till decision, the U.S. Supreme Court selected the Formula Approach to provide a straightforward, familiar, and objective method for determining the cramdown interest rate to be paid on secured claims in Chapter 13 cases, minimizing the need for potentially costly additional evidentiary proceedings. Many bankruptcy courts have found this decision instructive and directive for Chapter 11 matters. However, the application of the Formula Approach for determining the cramdown interest rate on secured claims in Chapter 11 matters has not made for a straightforward approach, nor has it eliminated sometimes lengthy and…