438 B.R. 471
Bankr. D. Del.2010Background
- Capmark's secured lenders hold a roughly $1.1 billion pre-petition claim, secured by $200 million cash and a pool of commercial mortgage loans valued at $1.3–$1.5 billion.
- Debtors seek Court approval of a settlement that pays cash equal to 91% of the pre-petition secured claims, plus ~$75 million in post-petition interest and fees, in exchange for a release and relinquishment of collateral.
- Official Committee opposes, arguing no legal basis to pay a pre-petition secured claim outside a plan, and that the collateral is worth far less than claimed and litigation is strong.
- Court applies Martin factors under Bankruptcy Rule 9019 to determine whether the settlement is fair and above the lowest point in the range of reasonableness.
- The four-day evidentiary hearing concluded the settlement is fair, reasonable, and in the best interests of the Estate, with the collateral value exceeding the cash being exchanged and likely recoveries through the Pledged Pool.
- Court approves the settlement and denies the Standing Motion as moot, finding the benefits to unsecured creditors and estate justify the compromise.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 9019 settlement is fair and equitable | Official Committee argues it is not fair or equitable, given unsecured creditors' stake and lack of plan context. | Debtors/Ad Hoc Secured Committee contend the settlement passes the Martin factors and is superior to litigation. | Settlement approved as fair and above the lowest point in the range. |
| Whether settlement outside a plan is permissible to pay prepetition secured claims | Officials assert no authority to pay pre-petition claims outside a plan in a liquidating case. | Debtors show authority exists under bankruptcy law for such payments under appropriate facts. | Payments outside a plan are permissible under the facts; not violative of the Code here. |
| Whether the secured credit facility is oversecured and the collateral value justifies the settlement | Unsecured creditors fear overreaching secured claims and value of collateral supports litigation claims. | Evidence shows the Pledged Pool is significantly overcollateralized and projected recoveries exceed the settlement. | Court finds the Secured Credit Facility is oversecured, with collateral value well in excess of the secured claims. |
| Whether the settlement is a impermissible sub rosa plan | Settlement dictates plan terms and structure outside the plan process. | Settlement does not dictate plan terms and is not a disguised plan; releases are standard. | Settlement not a sub rosa plan. |
| Whether the 2006/2009 guaranties were legally vulnerable to avoidance/fraudulent transfer challenges | Committee argues possible avoidance of guaranties and fraudulent transfer risks render the settlement questionable. | Court and experts find guaranties were reasonable at the time and not properly avoidable; settlement outweighs speculative avoidance. | Martin analysis supports settlement; avoidance actions unlikely to succeed. |
Key Cases Cited
- Myers v. Martin, 91 F.3d 389 (3d Cir. 1996) (framework for evaluating settlements under Rule 9019)
- In re Louise's Inc., 211 B.R. 798 (D. Del. 1997) (preference and settlement considerations in bankruptcy)
- In re World Health Alt., Inc., 344 B.R. 291 (Bankr. D. Del. 2006) (principles for determining the reasonableness of settlements)
- Official Comm. of Unsecured Creditors v. Motor Coach Indus., Int'l, Inc., 2009 WL 330993 (D. Del. 2009) (precedent on settlements outside a plan (cited in discussion))
- Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (U.S. 1968) (rule governing compromises in bankruptcy)