In Re Riverbend Leasing LLC
458 B.R. 520
Bankr. S.D. Iowa2011Background
- Riverbend Leasing LLC filed Chapter 11 in the SD Iowa; Judge Shodeen presided over plan confirmation and related stay-relief motions.
- Debtor proposed Second Amended Plan to treat Security Bank’s claim as fully secured with a 15-year term and 4.25% fixed rate, including 18 months of interest-only payments.
- Guarantors (Insiders Pratt, Meyer, Ahrens) guaranteed Bank debt; Bank pursued state court foreclosure and receivership before bankruptcy.
- Plan enjoins Insiders from enforcement of guaranties so long as the plan remains current; disputes arose over curing pre-petition default and the effect of confirmation on guaranties.
- Bank objected to confirmation and sought relief from stay; the Court combined confirmation and stay issues and ultimately denied confirmation on the Plan’s terms, particularly the non-debtor injunction and treatment of five vacant lots as collateral.
- Court reserved ruling on some issues and set deadlines for an amended plan.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Non-debtor injunction under plan terms | Riverbend contends 105(a) allows non-debtor protections to aid reorganization. | Bank asserts such injunctions extend the automatic stay and improperly discharge guarantors. | Plan term enjoining insiders does not satisfy 1129(a)(1) and is denied. |
| Cram-down of secured claim with 1129(b) | Riverbend argues plan is fair and equitable despite treating Bank as fully secured. | Bank contends plan fails 1129(b)(2)(A)(ii) by not preserving lien on sale proceeds and by improper adjustment. | Plan provision on five lots and lien treatment is not fair and equitable; cram-down not approved. |
| Interest rate under Till formula | Riverbend supports prime rate plus a small risk adjustment. | Bank seeks higher or market-based rate using an efficient market approach. | Court adopts Till formula; sets rate at prime plus 2.5% (5.75% as of ruling). |
| Valuation / lien on five lots | Debtor proposes holdback of sale proceeds with lien to Bank; seeks adjustment of promissory note based on surrender of lots. | Bank requires lien to attach to sale proceeds and standard cramdown mechanics. | Holding that the plan’s treatment of sale proceeds and holdback is not permitted under 1129(b)(2)(A)(ii); plan contribution fails. |
Key Cases Cited
- Till v. SCS Credit Corp., 541 U.S. 465 (U.S. 2004) (formula approach for cramdown interest rate; value of claim must be paid; risk adjustment considered)
- In re Drexel Burnham Lambert Group, Inc., 960 F.2d 285 (2d Cir. 1992) (non-debtor protection and unique circumstances may justify injunctions in reorganization)
- In re Dow Corning Corp., 280 F.3d 648 (6th Cir. 2002) (limits and considerations on extending relief to non-debtors; substantial contributions weighed)
- In re Linda Vista Cinemas, L.L.C., 442 B.R. 724 (Bankr. D. Ariz. 2010) (considering non-debtor protections and discharge implications)
- In re Doud, 869 F.2d 1144 (8th Cir. 1989) (guidance on evaluating risk and interest rate adjustments under Till framework)