Matter of MPM Silicones, LLC
United States Court of Appeals for the Second Circuit
874 F.3d 787 (as amended) (2017)
- Written by Rose VanHofwegen, JD
Facts
Silicone manufacturer Momentive Performance Materials, Inc. (MPM) (debtor) reorganized after borrowing $2.85 billion. The third-round lenders (creditors) acquired senior-lien notes with priority that called for recovery of a “make-whole” premium if redeemed before maturity. Under MPM’s reorganization plan, the senior-lien note holders could accept the plan and receive an immediate cash payment of amounts due on their notes without a make-whole premium, or reject the plan and receive replacement notes with a value equal to the amount of their claims. However, the interest rate on the proposed replacement notes was below the market rate that MPM would have received if the senior-lien note holders accepted the plan and the cash-out payment. Lenders willing to provide MPM exit financing to fund the cash-out payment quoted MPM rates from 5 to 6+ percent. But the bankruptcy court calculated the rate using a formula the Supreme Court approved for a Chapter 13 cramdown loan, resulting in rates of 4.1 to 4.85 percent. The senior-lien note holders presented expert testimony establishing that lenders in the market offered higher rates, but the bankruptcy court nonetheless confirmed the plan using lower rates, and the district court affirmed. The senior-lien note holders appealed to the Second Circuit.
Rule of Law
Issue
Holding and Reasoning (Parker, J.)
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