Second Circuit Gives Momentive Secured Creditors Another Shot at Market-Based Interest Rate in Cramdown Fight; Also Affirms Bankruptcy Court’s Denial of Make-Whole Premium

On October 20, 2017, the U.S. Court of Appeals for the Second Circuit delivered a victory for secured lenders by remanding the District Court’s order confirming the Debtors’ proposed plan to determine whether an efficient market exists in connection with the appropriate interest rates on takeback paper issued to secured lenders under Momentive Performance Materials, Inc.’s (“MPM”) chapter 11 “cramdown” plan. Though the Second Circuit’s decision provides clarity with respect to the application of the well-known Till approach, it leaves open several unanswered questions likely to result in continued litigation in this and other cases in the Second Circuit.

Background and the Bankruptcy Court Decision -

MPM commenced prearranged chapter 11 cases in April 2014, entering bankruptcy with the support of many of its key constituencies and intending to emerge from bankruptcy within a relatively short time period. MPM had issued $1 billion in second-lien notes, the holders of which unanimously accepted the plan. MPM, however, was unable to garner the support of holders of $1.35 billion in senior secured notes (the “Senior-Lien Noteholders” and the “Senior-Lien Notes”). To encourage Senior-Lien Noteholder support, the chapter 11 plan provided “deathtrap” treatment for satisfaction of the Senior-Lien Notes claims, pursuant to which Senior-Lien Noteholders would receive (i) if the class accepted the plan, a discounted cash payout, or (ii) if the class rejected the plan, takeback paper priced in accordance with Till’s formula rate approach.