Recently, the Third Circuit reversed decisions issued by the Delaware Bankruptcy and District Courts and permitted first and second lien noteholders of Energy Future Intermediate Holding Company LLC and EFIH Finance Inc. to receive payment of a make-whole premium. In re Energy Future Holdings Corp., No. 16-1351 (3d Cir. Nov. 17, 2016). The decision, which is largely grounded in New York law, departs from recent controversial decisions issued by the Bankruptcy Court and District Court for the Southern District of New York in the Momentive bankruptcy, which we have previously discussed here and here. In Momentive, the courts reached the opposite conclusion on substantially similar facts. In Momentive, the courts reached the opposite conclusion on substantially similar facts. In addition to creating a split between the Third Circuit and the Southern District of New York, the ruling creates uncertainty regarding the ability for the debtors in the long-running EFH bankruptcy to confirm their proposed chapter 11 plan. READ MORE
Noteholders
Momentive: Case Update
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.