Likewise, if/when terminates, secured C MAY exclusivity propose in which secured C is paid in full AND in cash, plan AND unsecured Cs are essentialy wiped out… AND, b/c secured C’s rights are by this plan, … “altered” secured C IS an (“altered” does NOT necessarily impaired class mean worse off”, MAY merely mean “made “changed”/ “improved”)… thus, b/c there is one will occur impaired class, … “cramdown” C-lender (victimized by will seek risk premium (as per risk “cramdown”) of to BUT, likely ONLY 1-2% above conversion Ch. 7)… contract interest rate (NOT a full rate) default interest priority rule”… “Absolute As per must be fair/equitable to each plan impaired “cramdown”, AND, a plan is NOT fair/equitable to an of unsecured claims impaired class if said is NOT paid in full any junior to said class class class –AND– receives anything (§ 1129(b)(2)(B))… thus, if unsecured Cs receive ONLY $0.50 on the dollar, then … equity holders (who are junior to Cs) may NOT receive anything… BUT, if equity holders receive nothing, then will fail in DIP Ch. … 11 Exception to priority rule” new value plan… “absolute If equity holders put ($$ OR $$’s worth, NOT new value “sweat equity”) into then equity holders MAY receive something in DIP, plan… BUT, nonetheless, equity holders must NOT receive any … that is junior claim… account of” “property” “on In old equity holders give in 203 N. LaSalle, DIP’s new value exchange for shares of reorganized corp. YES “property”… AND, old equity holders are given this exclusive opportunity … solely b/c of their status as old equity holders YES account “on of”… thus, is NOT fair/equitable b/c there is NO way to plan … determine adequacy of (plan proposed by AND plan DIP, DIP made up of old equity holders) NOT market-tested thus, old equity holders who give AND receive new value … in exchange must NOT receive this opportunity “property” “on their prior status options… account of”
Likewise, if/when exclusivity terminates, secured C MAY propose plan in which secured C is paid in full AND in cash, AND unsecured Cs are essentialy wiped out… … AND, b/c secured C’s rights are “altered” by this plan, secured C IS an impaired class (“altered” does NOT necessarily mean “made worse off”, MAY merely mean “changed”/ “improved”)… … thus, b/c there is one impaired class, “cramdown” will occur C-lender (victimized by “cramdown”) will seek risk premium (as per risk of conversion to Ch. 7)… BUT, likely ONLY 1-2% above contract interest rate (NOT a full default interest rate) “Absolute priority rule”… As per “cramdown”, plan must be fair/equitable to each impaired AND, a plan is NOT fair/equitable to an impaired class of unsecured claims if said class is NOT paid in full –AND– any class junior to said class receives anything (§ 1129(b)(2)(B))… … thus, if unsecured Cs receive ONLY $0.50 on the dollar, then equity holders (who are junior to Cs) may NOT receive anything… … BUT, if equity holders receive nothing, then DIP will fail in Ch. 11 Exception to “absolute priority rule” new value plan… If equity holders put new value ($$ OR $$’s worth, NOT “sweat equity”) into DIP, then equity holders MAY receive something in plan… … BUT, nonetheless, equity holders must NOT receive any “property” that is “on account of” junior claim… In 203 N. LaSalle, DIP’s old equity holders give new value in exchange for shares of reorganized corp. YES “property”… … AND, old equity holders are given this exclusive opportunity solely b/c of their status as old equity holders YES “on account of”… … thus, plan is NOT fair/equitable b/c there is NO way to determine adequacy of plan (plan proposed by DIP, AND DIP made up of old equity holders) NOT market-tested … thus, old equity holders who give new value AND receive “property” in exchange must NOT receive this opportunity “on account of” their prior status options…
Bankruptcy_Schechter-Fall-2009.docx