9th Circuit BAP Affirms Cramdown Interest of 4.5%

A few weeks ago, the 9th Circuit BAP affirmed the bankruptcy court’s confirmation of a chapter 11 plan in In re Windmill Durango Office, LLC.  The single asset debtor owned a building worth $19 million on which it owed $16.2 million to the bank.  The court confirmed over the objection of the bank, a 4.5% interest rate, balloon in 10 years.  The opinion is here. 

What is surprising to me is that since the debtor is solvent, the sole beneficiary of the cramdown as to the interest rate is the debtor.  The unsecured totaled only a few thousand dollars and were paid in full.  I have seen many cases that say the debtor can’t simply change its mind about the deal and re-write the loan to lower the interest rate.  The attempt to do that is not in good faith.  It’s possible that the bank didn’t think of that argument so it didn’t come up.   The opinion also doesn’t state the original interest rate so maybe the 4.5% was close to the contract rate.

As a debtor lawyer, I was happy to see approval of the 4.5% interest rate as “reasonable.”  I still think most judges confronted with the decision are looking at higher interest rates, especially when the loan is 100% LTV.

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