As an update to our prior blog post, on May 4, 2015, Vincent Briccetti, United States District Court Judge for the Southern District of New York, issued a decision affirming the Bankruptcy Court’s order confirming Momentive’s cramdown chapter 11 plan. The decision was long awaited with the parties having completed briefing in December 2014.
Judge Briccetti followed the reasoning of the Bankruptcy Court and affirmed the use of the “formula” approach to determine the cramdown interest rate. Under the formula approach, the cramdown interest rate is equal to the sum of a “risk free” base rate (such as the prime rate) plus a risk margin of 1-3%. Judge Briccetti rejected the “efficient market” approach advocated by the first and 1.5 lien noteholders, affirming the view that rates should not include any profit to secured creditors. Under the efficient market approach, the cramdown interest rate is based on the interest rate the market would pay on such a loan.