Presenting a live 90-minute webinar with interactive Q&A
Leveraging Secured Lender Bankruptcy
Cramdown Rules and Setting Interest
Rates: Debtor and Lender Strategies
WEDNESDAY, JULY 15, 2015
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12pm Central | 11am Mountain
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Today’s faculty features:
Gary L. Kaplan, Partner, Fried Frank, New York
Benjamin Mintz, Partner, Kaye Scholer, New York
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Benjamin Mintz
[email protected]
Leveraging Secured Lender Bankruptcy
Cramdown Rules and Setting Interest Rates:
Strategies for Debtors and Lenders
July 15, 2015
These materials were gathered for instructional purposes and do not represent the official position of Kaye Scholer LLP or any of its
partners, counsel, associates, or employees, including the presenters, nor do they constitute legal advice applicable to any specific
matter.
Cramdown Requirements
• A nonconsensual plan can be confirmed through a cramdown if:
• Plan does not discriminate unfairly
• Plan is fair and equitable
• At least one impaired class of creditors has accepted the plan (without
counting insiders)
• All of the requirements for confirmation under section 1129(a) have been
satisfied, other than the requirement of section 1129(a)(8) that each
impaired class accept the plan
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Cramdown Requirements
• 1129(a) confirmation requirements include the following:
– Proper classification of claims (§§ 1129(a)(2), 1122)
– Equal treatment within a class (§§ 1129(a)(2), 1123(a)(4))
– Plan must be proposed in good faith (§ 1129(a)(3))
– Best interests test (§ 1129(a)(7))
– Feasibility (§ 1129(a)(11))
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1129(b) - No Unfair Discrimination
• Plan cannot discriminate unfairly against a dissenting class in relation to
similarly situated creditors (in a different class).
• Courts typically apply one of two tests to determine if there is unfair
discrimination:
– “Case by Case” Test – whether the proposed discrimination has a
reasonable basis, is necessary for reorganization and is proposed in good
faith
– “Rebuttable Presumption” Test – there will be a rebuttable presumption
that a plan is unfairly discriminatory when there is (1) a dissenting class,
(2) another class of the same priority, and (3) a difference in the plan’s
treatment of the two classes that results in either (a) a materially lower
percentage recovery for the dissenting class (based on net present value of
payments) or (b) regardless of percentage recovery, an allocation under the
plan of materially greater risk to the dissenting class in regard to its
proposed distribution
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Fair and Equitable Requirement
• Plan Must Be “Fair and Equitable” as to Dissenting Class
– Includes statutory requirements – specifying required treatment of
dissenting classes of secured creditors, unsecured creditors and equity
holders.
– Includes non-statutory requirements:
• Absolute priority rule (subject to new value exception)
• No premium recovery – no distributions in excess of claim amount
• No unfair/unreasonable risk shifting
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Fair and Equitable Requirement –
Statutory Treatment of Secured Creditors
• Secured Creditor treatment – 1129(b)(2)(A) provides three ways that a plan
can satisfy “fair and equitable” treatment with respect to a dissenting secured
creditor class.
– 1) Deferred payments: Payment over time in an amount equal to value of
collateral (based on present value of payments), with lien retained on the
collateral.
• Enables plan proponent to rewrite loan – i.e., principal amount based on
value of collateral, new interest rate, modified market-based covenants
and events of defaults.
• Loan may include nonstandard amortization payments, including a
balloon payment, subject to feasibility requirements.
• An undersecured creditor receiving a note in the amount of its collateral
value would be entitled to assert an unsecured deficiency claim (unless
that creditor makes the 1111(b) election).
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Fair and Equitable Requirement –
Statutory Treatment of Secured Creditors
• Effect of 1111(b) Election
– Secured creditor waives its unsecured deficiency claim.
– In exchange, the deferred plan payments must, in addition to having a
present value equal to the value of the collateral, total (but not on a
present value basis) the full allowed amount of the secured creditor’s
claim.
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Fair and Equitable Requirement –
Statutory Treatment of Secured Creditors
– 2) Collateral Sale: Sale of collateral with proceeds of sale subject to lien
of secured creditor; also subject to secured creditor’s credit bid rights.
• Proceeds can be transferred to secured creditor or debtor can create a
new loan secured by proceeds.
• In RadLAX Gateway Hotel LLC v. Amalgamated Bank, 132 S. Ct. 2065
(2012), Supreme Court held that a plan cannot eliminate credit bid right
through indubitable equivalence prong.
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Fair and Equitable Requirement –
Statutory Treatment of Secured Creditors
– 3) “Indubitable Equivalence” – plan must be completely compensatory
of creditor’s claim, based on conservative valuation; no reasonable doubt
of payment in full
• Abandonment or other unqualified transfer of collateral to secured
creditor (including delayed transfer if collateral is not sold within
specified time period)
• Replacement collateral of value in excess of secured claim
• “Dirt for Debt” or “Partial Dirt for Debt” plans—case by case analysis
• Sale without credit bid right—not indubitable equivalence (RadLAX)
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FINAL REPORT OF ABI COMMISSION –
CONFIRMATION RECOMMENDATIONS
• Redemption Option Value – allocation of reorganization value
to out of money creditors
• New Value Corollary
• Sections 506(c) and 552(b) – no waivers by trustee
• Cramdown interest rates
• No gifting or other class-skipping distributions
• One creditor/one vote
• No requirement of impaired accepting class
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CASE LAW DEVELOPMENTS
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Artificial Impairment
• Western Real Estate Equities, L.L.C. v. Village at Camp Bowie I, L.P. (In re
Village at Camp Bowie I, L.P.), 710 F.3d 239 (5th Cir. 2013)
– Facts: Debtor “impaired” class of trade creditors ($60,000) by delaying
payment in full for 3 months in order to cram down a $32 million secured
claim with five year note.
– Fifth Circuit permitted artificial impairment, explaining that section
1123(b)(1) of the Bankruptcy Code does not require that impairment must
be driven by economic motives; instead, the court would only consider
motive in deciding whether the plan was proposed in good faith under
section 1129(a)(3).
– Court distinguished its decision in In re Greystone III Joint Venture, 995
F.2d 1274 (5th Cir. 1991), which held that gerrymandering of creditor
classes to create an impaired accepting class violates section 1122
classification rules.
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Artificial Impairment
• Ninth Circuit (L&J Anaheim Associates v. Kawasaki Leasing International
Inc., 995 F.2d 940 (9th Cir. 1993)) also held that artificial impairment is not
prohibited by the Bankruptcy Code.
• Eighth Circuit (Windsor on the River Associates v. Balcor Real Estate
Financial Inc., 7 F.3d 127 (8th Cir. 1993)) held that artificial impairment was
improper and would nullify the protections of section 1129(a)(10).
– Third Circuit (In re Combustion Engineering Inc., 391 F.3d 190 (3rd Cir.
2004) reached a similar result, in the context of asbestos-related
bankruptcies. See also In re All Land Investments L.L.C., 468 B.R. 676
(Bankr. D. Del. 2012) (finding no evidence of business purpose for
impairment).
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Artificial Impairment
• Lower courts in Second Circuit and elsewhere have held that artificial impairment is
improper. See e.g., In re Fur Creations by Varriale, Ltd., 188 B.R. 754 (Bankr.
S.D.N.Y. 1995); In re RYYZ, LLC, 490 B.R. 29, 43 (Bankr. E.D.N.Y. Apr. 4, 2013)
(observing that majority view is that artificial impairment is not permitted); see also
In re Akinpelu, 530 B.R. 822 (Bankr. N.D. Ga. 2015) (finding that debtor’s plan
“improperly attempts to create an impaired assenting class for purpose of
confirmation” through separate classification of the undersecured lender’s deficiency
claim from other unsecured creditors); Federal Nat’l Mortgage Ass’n v. Village Green
I, GP, 483 B.R. 807 (W.D. Tenn. 2012) (delayed cash out of $2,400 unsecured claims
found to be improper artificial impairment where debtor sought to cramdown $5.4
million secured claim); Village Green I, GP v. Federal Nat’l Mortgage Ass’n, 523
B.R. 581 (W.D. Tenn. 2014).
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Claim Classification
• Wells Fargo Bank North America v. Loop 76, L.L.C. (In re Loop 76), 465
B.R. 525 (9th Cir. B.A.P. 2012), aff’d 578 Fed. Appx. 644 (9th Cir. 2014).
– Facts: Debtor placed undersecured creditor’s $6 million deficiency claim
in a class separate from its other unsecured claims. Debtor justified
separate classification because undersecured creditor’s claim was subject
to a guaranty (which the undersecured creditor was pursuing in state court
at the time). The undersecured creditor argued that the Debtor was
improperly gerrymandering by separately classifying its deficiency claim
from other unsecured claims.
– Bankruptcy Appellate Panel sustained separate classification, finding that
the existence of the guarantee and a third party source of recovery made
the undersecured creditor’s deficiency claim dissimilar from the claims of
other unsecured creditors.
– On appeal, Ninth Circuit upheld confirmation based on the existence of a
separate impaired accepting class and declined to address the issue of
whether the separate classification was impermissible gerrymandering.
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Claim Classification
• Accord In re RTJJ, Inc., 2013 WL 462003 (Bankr. W.D.N.C.
Feb. 6, 2013) (upholding separate classification of undersecured
mortgage claim and other unsecured claims, noting personal
guaranties in favor of mortgage claim, foreclosure rights and
other distinctions justifying separate classification); In re Hyatt,
2014 WL 1652415 (Bankr. D.N.M. Apr. 23, 2014) (upholding
separate classification of claim guaranteed by non-debtor and
secured by non-debtor collateral, where guarantor was servicing
the debt and was not in default); cf. In re NNN Parkway 400 26,
LLC, 505 B.R. 277 (Bankr. C.D. Cal. 2014) (guaranty from
insolvent debtor cannot support separate classification)
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Claim Classification
• Other courts have rejected the view that a third-party source of recovery, as a matter of
law, mandates separate classification. See In re AOV Indus., Inc., 792 F.2d 1140 (D.C.
Cir. 1986); In re 4th St. East Investors, Inc., 2012 WL 1745500 (Bankr. C.D. Cal. May
15, 2012); In re 18 RVC, L.L.C., 485 B.R. 492 (Bankr. E.D.N.Y. 2012); In re Quigley
Co., 377 B.R. 110 (Bankr. S.D.N.Y. 2007).
• In In re Marlow Manor Downtown, L.L.C., 2013 WL 5567171 (Bankr. D. Alaska Oct. 9,
2013), the court rejected separate classification of note, which was to be paid from
available cash flow (with balloon payment due at maturity), finding that the claim was
substantially similar to claim under separate note and general trade claims.
• In Polite Enters Corp. v. North American Safety Prods., Inc., 2014 WL 321668 (N.D. Il.
Jan. 29, 2014), the court upheld separate classification of ongoing trade creditors from
other unsecured creditors, even though the same treatment was afforded to both classes.
• In Akinpelu, 530 B.R. 822 (Bankr. N.D. Ga. 2015), the court rejected separate
classification of the holder of an unsecured deficiency claim, finding that the debtor had
failed to provide a business justification. The court rejected the distinction that the
deficiency claim was a business debt in contrast to the other debts which were consumer
debts. The court also rejected the fact that the deficiency claim was backed by a thirdparty guaranty insofar as the debtor had failed to provide facts establishing the viability
or character of the subject guaranties.
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Indubitable Equivalence
• In re River East Plaza, LLC, 669 F.3d 826 (7th Cir. 2012)
– Finding that substitute collateral of 30 year Treasury bonds was not
indubitable equivalent of mortgage lien on real estate property of
equivalent value due to different risk profiles of the collateral.
• In re Investors Lending Group, L.L.C., 489 B.R. 307 (Bankr. S.D. Ga. 2013)
– Holding that partial “dirt for debt” plans can constitute indubitable
equivalence, but recognizing that valuation must be conservative.
– Finding that properties proposed to be surrendered were not of sufficient
value to satisfy indubitable equivalence, but giving debtor opportunity to
amend plan to provide for surrender properties of a greater/sufficient value.
• In re CRB Partners, L.L.C., 2013 WL 796566 (Bankr. W.D. Tex. Mar. 4,
2013)
– Finding that partial “dirt for debt” plan did not satisfy indubitable
equivalence, recognizing the importance of providing the creditor with a
sufficient collateral cushion.
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Indubitable Equivalence (cont’d)
• In re Sugarleaf Timber, 529 B.R. 317 (M.D. Fla. 2015)
– Approving “dirt for debt” plan in view of equity cushion of $4.6 million
(in respect of $30.3 million property value).
• In re Colony Beach and Tennis Club, Inc., 508 B.R. 468 (Bankr. M.D. Fla.
2014), appeal dismissed sub nom. Colony Lender, LLC v. Breakpointe, LLC,
2015 WL 3689075 (M.D. Fla. June 12, 2015)
– Holding that deferred surrender of collateral without compensation for
risks arising from the delay do not provide indubitable equivalence.
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New York | Washington DC | London | Paris | Frankfurt | Hong Kong | Shanghai
Leveraging Secured Lender Bankruptcy
Cramdown Rules and Setting Interest Rates:
Strategies for Debtors and Lenders
July 15, 2015
Gary L. Kaplan
212.859.8812
[email protected]
These materials were gathered for instructional purposes and do not represent the official position of Fried, Frank, Harris, Shriver & Jacobson LLP or any of its partners, counsel, associates,
or employees, including the presenters, nor do they constitute legal advice applicable to any specific matter.
In addition, any forms or documents included in these materials should not be considered as models for any particular matter, nor should they be relied on as being applicable to any specific
legal matter.
© 2015 Fried, Frank, Harris, Shriver & Jacobson LLP
VALUATION ISSUES
25
Valuation Issues – General

While valuation is present in almost every stage of a bankruptcy case, valuation
is particularly relevant for secured creditors. Under 1129(b)(2)(A), a court may
confirm a plan notwithstanding the rejection of an impaired class of secured
claims if the plan (1) does not discriminate unfairly and (2) is fair and equitable
with respect to each nonaccepting, impaired class.
 Valuation is a crucial element of the fair and equitable analysis.


A secured class that fails to receive full payment will often object to confirmation
and argue that the plan is not fair and equitable because the plan proponent’s
valuation undervalued the assets.
In addition, oversecured creditors are entitled to post-petition interest and
payment of reasonable fees and expenses.
26
Valuation Issues – General

The methods of valuation will necessarily vary based on, among other things,
 circumstances of the case,
 the company and its business,
 the company’s projections,
 the industry in which the company competes and
 expert testimony regarding each of the above.
27
Types of Valuation

Going Concern Value
 Going concern refers to a business with some sort of future or a commercial
enterprise actively engaging in business with the expectation of indefinite
continuance.
 Assets of a going concern may be valued based on their present or projected
use and their current or future contribution to the production of revenues and
profits and may be discontinued for risk and the time value of money.

Liquidation Value
 Assumes no future or a limited future for an asset’s relationship to a business.
 Asset is valued at how much it will bring at a sale less the costs and expenses
associated with disposition.
28
In re SW Boston Hotel Venture, LLC –
Timing of Valuation

Prudential Ins. Co. of Am. v. City of Boston (In re SW Boston Hotel Venture,
LLC), 2014 U.S. App. LEXIS 6768 (1st Cir. Apr. 11, 2014).
 Court addressed the timing of the valuation of collateral and claims for the
purpose of determining a secured creditor’s entitlement to postpetition interest
under section 506(b) of the Bankruptcy Code.

Section 506 determines the amount of a secured claim and under section
506(b), an oversecured creditor is entitled to postpetition interest and
expenses.
 Court stated that “[a]lthough §506(b) dictates how courts should determine
secured status and collateral value, it does not specify the time as of which
these determinations should be made.”
29
In re SW Boston Hotel Venture, LLC (cont.)
 Court stated that courts have been split between a “single-valuation” approach,
where determination of oversecurity for section 506(b) purposes occurs at a fixed
point in time, and a “flexible” approach, where the bankruptcy court has discretion
to determine the appropriate measuring date based on the circumstances of the
case.
 Court agreed with the bankruptcy court and Bankruptcy Appellate Panel’s
(“BAP”) holding that the flexible approach applied for the circumstances
presented in the case and that the hotel sale date was the best evidence of its
value.

However, the court overturned the BAP’s finding that the sale price
established that the creditor was oversecured throughout the pendency of the
bankruptcy and instead held that the creditor was only oversecured and
entitled to post-petition interest from the sale date through the effective date.
30
Final Report of the ABI Commission1 –
Valuation Recommendations


In its final report, the ABI Commission recommended that the method of valuation be
informed by the overall purpose of the valuation at issue.
For example, the ABI Commission suggested using the following valuation methods
under each of the given purposes:


Adequate Protection – “foreclosure value” of the interest as of the time of the request for
adequate protection or automatic stay relief
Plan Distribution -“reorganization value” of the collateral


1
the term “reorganization value” means, the enterprise value attributable to the
reorganized business entity, plus the net realizable value of its assets that are not
included in determining the enterprise value and are subject to subsequent disposition
as provided in the confirmed plan.
Sale of Substantially All Assets (“363” Sale) - enterprise sale price
Published by the American Bankruptcy Institute’s Commission to Study the Reform of Chapter 11 (the “ABI Commission”).
31
CRAMDOWN INTEREST RATE POST-TILL
32
Till v. SCS Credit Corp. – Background

Till v. SCS Credit Corp., 541 U.S. 465 (2004).
 In a chapter 13 bankruptcy case, the Supreme Court considered different
methods for calculating the cramdown interest rate, ultimately holding that the
“prime plus” rate (also known as the “formula rate”) best comports with the
purposes of the Bankruptcy Code.
 The prime plus rate looks to the national prime rate and adjusts the rate to
account for the greater nonpayment risk that bankrupt debtors typically pose.
Factors courts should look to include

The probability of plan failure,

The rate of collateral depreciation,

The liquidity of the collateral market and

The administrative expenses of enforcement.
33
Till v. SCS Credit Corp. – Prime Plus Rate
 Courts are required to “hold a hearing at which the debtor and any creditors
may present evidence about the appropriate risk adjustment.”
 Court found that 9.5% was an appropriate interest rate in the case, which
consisted of a 1.5% risk adjustment on the 8% national prime rate.
34
Till v. SCS Credit Corp. – Efficient Market Rate
 In addition, in footnote 14 of the opinion, the court also introduced the
“efficient market rate” when it noted that while there is no free market of willing
cramdown lenders because every cramdown loan is imposed by a court over
the objection of the secured lender, the same is not true in the chapter 11
context, where numerous lenders advertise financing for chapter 11 debtors in
possession.

Specifically, the court noted that in contrast to the chapter 13 context
where there is no market, and therefore courts “ask only what rate will
fairly compensate a creditor for its exposure,” “[w]hen picking a cram down
rate in a Chapter 11 case, it might make sense to ask what rate an efficient
market would produce.”
35
Till v. SCS Credit Corp. – Uneven Application



Courts have unevenly applied Till in cramdowns of secured lenders in chapter 11
cases, focusing primarily on the evidentiary requirements suggested in footnote
14 in determining what rate an efficient market would produce.
Due to the difficulties in proving an efficient market, most courts appear to hold
that a formula rate applies unless there exists an efficient lending market for the
proposed exit financing.
Based on the case law, the interest rate determination will ultimately depend on,
among other things, the circumstances of the case, litigation posture and
jurisdiction and expert opinion.
36
In re American Homepatient, Inc. – Coerced Loan Theory

Bank of Montreal v. Official Comm. of Unsecured Creditors (In re American
Homepatient, Inc.), 420 F.3d 559 (6th Cir. 2005).
 In the initial circuit court case to address Till, the court approved a pre-Till
bankruptcy court finding of an interest rate based on the coerced loan theory.

Under the coerced loan theory, courts “treat any deferred payment of an
obligation under a plan as a coerced loan and the rate of return with
respect to such loan must correspond to the rate that would be charged or
obtained by the creditor making a loan to a third party with similar terms,
duration, collateral and risk.”
37
In re American Homepatient, Inc. (cont.)
 After the court declined to “adopt Till’s endorsement of the formula approach for
Chapter 13 cases in the Chapter 11 context,” the court took no issue with the
bankruptcy court’s methodology and use of the coerced loan theory, noting that
Till “pointed out that, if anything, the coerced loan theory ‘overcompensates
creditors.’”
 The Sixth Circuit declined to “adopt Till’s endorsement of the formula approach
for Chapter 13 cases in the Chapter 11 context.” Instead, the court stated that
the “the market rate should be applied in Chapter 11 cases where there exists
an efficient market” and in the event that there is no efficient market, “then the
bankruptcy court should employ the formula approach endorsed by the Till
plurality.”
38
In re Rocky Mt. Land Co. LLC – Two-Step Process

CRE/ADC Venture 2013, LLC v. Rocky Mt. Land Co., LLC (In re Rocky Mt. Land
Co. LLC), 2014 Bankr. LEXIS 1370 (Bankr. D. Colo. Apr. 3, 2014).
 Recently, a court reaffirmed the two-step process set forth by In re American
Home Patient for determining the appropriate interest rate in a chapter 11
case:

First, a court should assess whether an efficient market exists.

If it does, the court should apply the market rate.

If it does not, the court should apply Till’s prime-plus formula rate.
 The court further noted that “[t]he evidentiary burden for establishing an
appropriate interest rate under Till falls ‘squarely on the creditors.’”
39
Good v. RMR Investments, Inc. –
Presumptive Contract Approach

Good v. RMR Investments, Inc., 428 B.R. 249 (E.D. Tex. 2010).
 Court stated that footnote 14 of Till suggests that “while the formula approach may be
applied in the Chapter 11 context, its application is not required.”
 Noting that Till is a plurality opinion “and therefore does not necessarily reflect the rule
for calculating cramdown interest in all circumstances,” court upheld bankruptcy
court’s decision to use the default contract rate to calculate post-confirmation interest
in the case of a solvent debtor.
 The bankruptcy court had arrived at the default contract rate by applying the
presumptive contract approach. Under the presumptive contract approach,
“[w]hen a debtor is solvent, [] the presumption is that a bankruptcy court’s role is
merely to enforce the contractual rights of the parties, and the role that equitable
principles play in the allocation of competing interest is significantly reduced.”
40
In re North Valley Mall, L.L.C. – Blended Rate Approach

In re North Valley Mall, LLC, 432 B.R. 825 (Bankr. C.D. Cal. 2010).
 Court noted that a shopping center “is valued very differently” from a truck in a
chapter 13 case such as in Till and that a “blended rate” approach is “the
approach best utilized in a commercial real estate case.”

Court applied the analysis from a pre-Till case Pacific First Bank v.
Boulders on the River, Inc., 164 B.R. 99 (9th Cir. B.A.P. 1994), which used
a blended rate comprised of two tranches, “a first level comprised of what
could be roughly called ‘market rate’ loans on then standard terms…and
then a mezzanine tranche.”
 Drawing upon and analyzing expert testimony, court settled on a rate that
blended the rates of three separate tranches, a senior initial tranche, a
mezzanine tranche and an equity tranche.
41
In re Tex. Grand Prairie Hotel Realty, LLC

Wells Fargo Bank N.A. v. Tex. Grand. Prairie Hotel Realty, L.L.C. (In re Tex.
Grand Prairie Hotel Realty, L.L.C.), 710 F.3d 324 (5th Cir. Tex. 2013).
 Fifth Circuit applied Till’s prime plus approach, but declined “to tie bankruptcy
courts to a specific methodology as they assess the appropriate Chapter 11
cramdown rate of interest.”
42
In re MPM Silicones, LLC (“Momentive”) – Overview

In re MPM Silicones, LLC, 2015 U.S. Dist. LEXIS 66420 (S.D.N.Y. May 4, 2015).
 District Court affirmed bankruptcy court opinion that adopted Till’s “formula”
approach using the 7-year U.S. Treasury note rate as the risk-free base rate
and rejected coerced loan theory and efficient market approach.
 Noteworthy because decision permits chapter 11 debtor to compel classes of
unwilling secured creditors to receive replacement notes with below-market
interest rates in full satisfaction of their claims.
43
In re MPM Silicones, LLC – Formula Approach


Affirmed the bankruptcy court’s use of Till formula approach to determine that present value
test in section 1129(b)(2)(A)(i)(II) is satisfied with an interest rate of (i) a risk-free base rate,
plus (ii) a risk premium that reflects only the repayment risk associated with the debtors (i.e.,
the interest rate need not include any profits, costs or fees).
Rejected efficient market approach reasoning that the approach
 Imposes significant evidentiary costs,
 Aims to make each creditor whole rather than ensure debtor’s payments have required
present value,
 Overcompensates creditors by accounting for factors such as lenders’ transaction costs
and profits that are not relevant in chapter 11 context and should not be reflected in
interest rate.

Affirmed bankruptcy court’s election of 7-year U.S. Treasury note rate as risk-free base rate
instead of national prime rate, finding that bankruptcy court was not required to use national
prime rate as base rate.
44
Final Report of the ABI Commission –
Cramdown Interest Rate Recommendations

The ABI Commission made the following recommendations:
 Courts should not use the Till formula approach (prime rate plus 1-3%) to
determine present value of deferred cash payments.
 Instead, if possible, courts should adopt the market rate approach.
 If a market rate cannot be determined, courts should use an “appropriate risk-
adjusted rate” reflecting the actual risk of extending credit to the debtor, the
economic realities, cost of capital to comparable companies, etc.
45