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Bank of Montreal v. Official Committee of Unsecured Creditors (In re American HomePatient, Inc.)
United States Court of Appeals for the Sixth Circuit
420 F.3d 559 (2005)
American HomePatient, Inc. (American) (debtor) took out loans with a principal amount between $278 and $290 million. Later, American filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. A group of secured lenders that included Bank of Montreal (the lenders) (plaintiffs) raised objections to the proposed reorganization plan, but the bankruptcy court used the Bankruptcy Code’s cramdown provision to force approval. In determining a cramdown interest rate, the court used an approach called the coerced-loan theory, which considered the interest rate that a lender would obtain if it made a new loan to a similarly situated debtor in the same industry, albeit outside of bankruptcy. The court chose an interest rate of 6.785 percent—a figure based on the interest rate of a six-year Treasury note plus 3.5 percent. The lenders, however, considered the appropriate interest rate to be 12.16 percent—a figure that the bankruptcy court rejected as providing the lenders with an unnecessary windfall. The lenders appealed to federal district court, which affirmed the bankruptcy court. The lenders appealed. The United States Court of Appeals for the Sixth Circuit granted certiorari.
Rule of Law
Holding and Reasoning (Gilman, J.)
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