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October 23, 2017
Till No More: Second Circuit in Momentive Requires Market Interest Rate for Secured Creditor Cramdown in Chapter 11

On October 23, 2017, Cravath prepared for its clients a memo entitled “Till No More: Second Circuit in Momentive Requires Market Interest Rate for Secured Creditor Cramdown in Chapter 11.” The memo summarizes the Second Circuit’s opinion on the appeals of the plan confirmation order in the Momentive Performance Materials Inc. bankruptcy case, which covers several issues important to creditors at all levels of the capital structure, including: lien subordination versus payment or debt subordination; entitlement to “make-whole” premiums in bankruptcy; and whether the interest rate on replacement notes issued in a Chapter 11 cramdown should be market-based or formula-based.

In an important victory for secured creditors, the Court rejected the formula-based approach in favor of a market rate of interest where an efficient market rate can be ascertained, which should significantly reduce the likelihood that secured creditors will be forced to take back replacement debt with a below market coupon in a Chapter 11 reorganization.

Please click here to read the memo.