The "Devil's Dictionary" is a quick-reference guide for commercial lenders and other restructuring professionals. In this series, we highlight many of the buzz words found in the Dictionary and used in today's bankruptcy arena.

INDUBITABLE EQUIVALENT: Something that is supposedly undoubtedly equal in value to what is taken away. 

A “catch all” form of adequate protection under the Code requiring that a debtor provide a creditor with something having a value that is the “indubitable equivalent” of the amount of diminution in value of the creditor’s collateral resulting from its use in the bankruptcy case. 

It is also one means of providing “fair and equitable” treatment to a secured creditor under a Chapter 11 plan, i.e., by providing the creditor with the “indubitable equivalent” of its claim. In a typical Chapter 11 plan involving the claim of a lender the debtor most often attempts to satisfy the lender’s right to “fair and equitable treatment” by providing the lender with periodic payments sufficient to pay the secured claim in full, with interest, while the lender retains its lien under the plan. A second option for the debtor to satisfy the fair and equitable test is for the plan to provide for a sale of the lender’s collateral, free and clear of the lender’s lien, with the lien to attach to the sale proceeds. The third option—providing the lender with the “indubitable equivalent” of its claim—is less well defined than the first two options. 

The courts have only outlined the contours of the term in decisions accepting and rejecting various plan treatments offered by proponents as providing a lender the indubitable equivalent of its secured claim. For example:

• A lender does not receive the indubitable equivalent of its claim if the debtor substitutes a letter of credit for the lender’s collateral, but the letter of credit is subject to ambiguities in the letter of credit accommodations. 
• There is no indubitable equivalence where a debtor substitutes equity securities for the lender’s collateral if the value of the securities is questionable. 
• If the debtor is to transfer property to the lender as the indubitable equivalent of the lender’s secured claim, the property must produce cash flow or be capable of being sold within a reasonable time so that the lender can realize cash. 

The U.S. Third Circuit of Appeals in Philadelphia Newspapers, LLC, 599 F.3d 298 (3rd Cir. 2010), held that, so long as the debtor's reorganization plan provides a secured creditor with the "indubitable equivalent" of its secured claim, a secured creditor can be barred from credit bidding at an auction sale under a plan. There currently is a split in the U.S. Court of Appeal Circuits that have considered the issue. The Supreme Court will presumably resolve this split in connection with an appeal pending (as of the date of publication) in the Rad LAX Gateway Hotel, LLC, et al. v. Amalgamated Bank case.

Bankruptcy Code §§ 361(3), 1129(b)(2)(A)(iii). See also Adequate Protection, Confirmation Requirements, Cramdown, Credit Bid Rights, Eat Dirt Plan, Fair and Equitable Test, Reverse Alchemy.

"The Devil's Dictionary" is an excellent reference tool that reflects the collective wisdom of its four authors, Brett Anders, Jim Bird, David Ferguson, and Dan Flanigan, who have a combined total of more than 110 years working in the forefront of real estate and other commercial finance, loan enforcement, financial restructuring and bankruptcy law.