"APPROPRIATE RATE OF INTEREST" FOR A CHAPTER 11 CRAM-DOWN & THE SUPREME COURT’S "TILL" DECISION

According to the Bankruptcy Code, a confirmable Plan of Reorganization must provide dissenting secured creditors a sum of cash payments equaling or exceeding the amount of the creditor's allowed secured claim AND the present value of those cash payments, as discounted by "an appropriate interest rate," must also equal or exceed the amount of that claim. In other words, the debtor’s new loan is going to be “crammed down” on the old creditor—and the biggest thing open to discussion is the interest rate that the unwilling lender is now going to receive.

The Supreme Court's "Till" decision has been used to provide guidance as to that "appropriate interest rate." The decision in the case “Till v. SCS Credit Corp., 541 U.S. 465 (2004)” acknowledges certain calculation approaches to arriving at said rate and rejects many of them, while approving of a couple of them.

Judge Markell, District of Nevada, discusses the “Till” decision and other matters in the context of Rainbow 215, LLC, a single-asset entity that developed, constructed and managed a retail mall in Las Vegas. He outlines ramifications of there being no "market" for the new loan, then defines an approved methodology for calculating "an appropriate rate of interest" given "Till" guidance. In this context, Judge Markell especially makes use of the evidence provided by expert witness Kenneth Funsten, CFA, of FamCo Advisory Services of Los Angeles.

The new interest rate afforded the reorganized debtor will have a material effect on the Debtor’s (hopefully) profitable reemergence from Chapter 11 protection. The Supreme Court has provided guidance. It is paramount to understand not only the SC decision but its applications in lower courts. This memorandum should be extremely helpful for operational and legal advisors of bankrupt and reorganizing companies, developers and even individuals.