Burr Alert: The Basics Of Cramdown Interest Rates In Chapter 11

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A debtor in a chapter 11 bankruptcy may treat a secured claim in one of two ways in its plan of reorganization: (1) the debtor may propose to cure any existing default, compensate the creditor for any loss sustained by the creditor as a result of the debtor's default, and reinstate the debt pursuant to the provisions of the governing loan documents; or (2) the debtor may propose a plan of reorganization that modifies the rights and remedies of the secured creditor. In the former scenario, the secured creditor is "unimpaired" and is deemed to accept the debtor's plan of reorganization. In the latter scenario, the secured creditor is "impaired," and this "impaired" creditor may vote to reject the plan. In the event the "impaired" creditor votes to reject the plan, the debtor's plan of reorganization may still be confirmed over the "impaired" creditor's rejection of the plan, but only if the debtor satisfies certain conditions. The debtor's ability to have its plan of reorganization confirmed over a secured creditor's rejection of same is colloquially referred to as "cramdown."

The requirements for cramdown in chapter 11 are outlined in Section 1129(b) of the Bankruptcy Code. According to Section 1129(b), cramdown is only available where a debtor's chapter 11 plan of reorganization...

Please see full Alert for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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