Two recent decisions by United States Circuit Courts of Appeal separately address the rights of secured creditors, unsecured creditors and equity holders under cram down plans of reorganization. In Wells Fargo Bank National Association v. Texas Grand Prairie Hotel Realty, LLC, the United States Court of Appeals for the Fifth Circuit upheld a bankruptcy court’s determination of the appropriate rate of interest payable to the holder of a secured claim whose claim was being paid over time under a cram down plan, despite the spread above prime from which the interest rate was derived being lower than a third party would be willing to lend on. In Castleton Plaza, LP, the United States Court of Appeals for the Seventh Circuit held that an insider of a shareholder relying on the “new value” exception to the absolute priority rule must, like an existing shareholder, expose the opportunity to competition.
Secured Creditor Cram Down and Texas Grand Prairie Section 1129(b) of the Bankruptcy Code contains the requirements for “cram down,” the common term for confirmation of a plan of reorganization that one or more impaired classes of claims or interests has not accepted. If the requirements for confirmation set forth in section 1129(a) of the Bankruptcy Code (other than acceptance by all impaired classes) have been satisfied, then the court can confirm a cram down plan that does not discriminate unfairly, and is fair and equitable with respect to each impaired non-accepting class.
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Topics: Cramdown, Debtors, Lenders, Prime-Plus Formula, Reorganizations, Secured Creditors
Published In: Bankruptcy Updates, Business Organization Updates, General Business Updates, Finance & Banking Updates, Securities Updates
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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