Case Summary:
Chapter 11 debtor’s secured creditors (banks) held $57.6M in claims. At a valuation hearing the Court determined the value of the banks’ collateral to be $36M. However, the banks made the § 1111(b) election. Accordingly, in order to be confirmable, the Debtor’s plan was required to provide the banks with total payments under the plan equal to the amount of the banks’ claims ($57.6M), which payments were required to have a current value equaling the value of the banks’ collateral ($36M). The banks objected to confirmation of the plan arguing that: (1) the plan was not proposed in good faith as it artificially impaired a class of creditors in order to secure superficial compliance with § 1129(a)(10); (2) the debtor failed to establish feasibility of the plan; (3) the plan violated § 1129(b)’s absolute priority rule as the debtor’s sole member was allowed to retain its ownership interest; (4) the plan failed to comply with § 1129(b)(2)(A)(i)(I) because it improperly eliminated some of the creditor’s prepetition security interests; (5) the plan improperly provided for a reduction in the current value of the banks’ claims ($36M) as a result of the payment to the banks of a $3.8M debt service reserve fund held on their behalf; and (6) that the interest rate proposed by the debtor (4.65%) failed to comply with Till. Despite these objections, the Court confirmed the plan. As to (1), the Court found that “the concept of artificial impairment is a chimera.” As to (2), the banks’ protestations notwithstanding, the Court found that the Debtor had “met its burden is establishing that the proposed plan is feasible,” as “the proponent [of a plan] need not demonstrate that a plan carries a guarantee of success.” As to (3), the Court found that the banks no longer had standing to argue that the plan violated the absolute priority rule given that, as a result of their § 1111(b) election, they no longer held unsecured claims. Additionally, the Court found that the membership interest held by the Debtor’s sole member, a non-profit, was not the sort of for-profit equity interest to which the absolute priority rule would apply. As to (4), the Court found that, based upon the representations made by the Debtor’s attorney that the Debtor would assist the banks in perfecting security interests in all prepetition collateral in which the banks had perfected security interests, the plan did not violate § 1129(b)(2)(A)(i)(I). As to (5), the Court found that nothing in the record supported the banks’ argument that the Debtor was attempting to reduce the current value of the banks’ claims ($36M) as a result of the payment to the banks of the $3.8M debt reserve fund. Finally, as to (6), the Court found the opinion of the Debtor’s Till expert to be “much the more persuasive and firmly based.” In fact, the Court determine that the testimony of the banks’ Till expert appeared to “facile and predirected to a result.”