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.
