In re Ultra Petroleum Corporation

Ultra Petroleum Corporation (debtor) was a holding company with two subsidiaries (debtors) that engaged in oil and gas exploration and production. Between 2008 and 2010, one subsidiary obtained money for its operations by issuing unsecured notes. That subsidiary borrowed additional funds under a revolving credit facility in 2011. Ultra and Ultra’s other subsidiary guaranteed both debt obligations. Between 2014 and early 2016, the price of crude oil dropped substantially. Ultra and its subsidiaries became overwhelmed by debt and petitioned for reorganization under chapter 11. However, during the bankruptcy proceedings, crude oil prices rebounded, and Ultra and its subsidiaries became solvent again. The companies thus proposed a reorganization plan that fully compensated their creditors. The plan provided that Class 4 Creditors (creditors), i.e., those creditors with claims under the subsidiary’s note agreements or the revolving credit facility, would receive payment of the outstanding principal, plus 0.1 percent prepetition interest and postpetition interest at the federal judgment rate. The Class 4 Creditors objected, arguing that they were impaired by the reorganization plan because the plan did not require Ultra and its subsidiaries to pay postpetition interest at the higher default rate specified by the parties’ contract. Ultra and its subsidiaries argued that there was no impairment because under 11 U.S.C. § 502(b)(2), courts should disallow creditors’ claims to the extent that they seek unmatured interest. Furthermore, 11 U.S.C. § 726(a)(5) provides that creditors are entitled to receive postpetition interest only at the “legal rate,” which Ultra and its subsidiaries asserted was the federal judgment rate. The bankruptcy court rejected Ultra’s arguments and concluded that to be unimpaired, the Class 4 Creditors would need to receive everything to which they were entitled under state law, even if that included something disallowed by the Bankruptcy Code. The court thus ordered Ultra and its subsidiaries to pay the contractual postpetition interest rate. Ultra and its subsidiaries appealed.