Fair Equivalents and Market Prices: Bankruptcy Cramdown Interest Rates

Cramdown is the confirmation of a plan of reorganization over the dissent of an entire class of creditors. Bankruptcy's absolute priority rule permits such confirmation only if the dissenting class is paid in full, or if no junior class receives anything. 'Paid in full,' however, does not require payment in cash. It can consist of intangible promises to pay money that banks, investors, and markets regularly value. Whether this market value can precisely be transferred to cramdown has vexed many.

Recently, the debate has flared when a bankruptcy court applied a chapter 13 case, Till v. SCS Credit Corp., to cramdown confirmation in Momentive, a large chapter 11 case. Given the legislative history and precedents in the cramdown area, this Article takes the position that Momentive was correct, and that courts should resist using pure market-based valuations in cramdown calculations.