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ARTICLE · 09 JANUARY 2020

Determining Diminution In Value: Key Issues On Valuing Adequate-Protection Claims

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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Herbert Smith Freehills Kramer LLP

Herbert Smith Freehills Kramer LLP

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A recent dispute in the chapter 11 case of Sears Holding Corp.1 over the allowance of adequate-protection claims underscores the need for bankruptcy professionals to understand the valuation of collateral in the adequate-protection context.

United StatesInsolvency/Bankruptcy/Re-Structuring
Stephen Zide
Stephen Zide
Joseph Shifer
Joseph Shifer
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A recent dispute in the chapter 11 case of Sears Holding Corp.1 over the allowance of adequate-protection claims underscores the need for bankruptcy professionals to understand the valuation of collateral in the adequate-protection context. This article focuses on certain aspects of the dispute that are relevant to understanding how courts evaluate whether a diminution in value of the secured creditor's collateral occurred.2

Adequate Protection

Nearly every large commercial bankruptcy case begins with the debtor seeking approval of a financing or cash-collateral order. As part of the order, the debtor's secured creditor will be provided with "adequate protection" to protect its interest in its collateral in the event its collateral decreases in value during the bankruptcy case.3

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