In Re SW Hotel Venture, LLC
460 B.R. 4
| Bankr. D. Mass. | 2011Background
- Debtors SW Hotel Venture, LLC et al. filed Chapter 11 petitions on April 28, 2010; Prudential asserted a first-priority mortgage and other guarantees securing a Construction Loan Agreement up to $190M with default interest at 14.5% and related enforcement costs.
- Prudential filed proofs of claim in November 2010 totaling not less than $180.8M plus interest, costs, and fees, but did not attach the loan documents to the claim.
- Prudential sought postpetition interest under §506(b) as an oversecured creditor, basing entitlement on the aggregate collateral value including the Hotel, Residences, securities, and other guarantees.
- The Debtors argued Prudential was undersecured as to SW (and Affiliated Debtors) through most of the case, until the June 8, 2011 Hotel sale closed, and disputed aggregating collateral for §506(b) purposes.
- The Sale Motion approved sale of the Hotel to Razorbacks Owner LLC for $89.5M (May 24, 2011), closing June 8, 2011, after which Prudential received $83,322,017 in net proceeds and the Debtors paid further sale proceeds totaling about $29.6M.
- The Plan proposes to treat Prudential’s Allowed Claim and pay it in full by March 31, 2014, with interest to be determined by the Court; Debtors and City oppose default-rate interest and seek limited postpetition interest at non-default rate before confirmation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When should secured status be fixed for 506(b) disposition? | Prudential argues it remains oversecured as cases progress. | Debtors contend status should be fixed at petition date or through plan confirmation. | Court adopts flexible/continuous valuation; oversecured status fixed as of June 8, 2011 sale closing. |
| Whether postpetition interest should accrue at default rate? | Default rate reflects costs of default under loan documents. | Default rate is punitive/inequitable; cap it or use contract rate. | Default rate of 14.5% approved from June 8, 2011 onward; not a penalty. |
| Are Prudential's fees and costs allowable under 506(b)? | Fees/charges tied to guaranteed obligations; should be allowed. | No itemization or fee application; insufficient evidence to award. | Fees and costs denied due to lack of itemization and application; limited to allowed amounts if properly documented. |
| Should collateral value be aggregated across Debtors for 506(b) analysis? | Aggregate value supports oversecured status. | Assets should be evaluated per debtor; plan structure governs. | Collateral aggregation permitted; overall oversecured status determined by aggregated collateral. |
Key Cases Cited
- United States v. Ron Pair Enters., Inc., 489 U.S. 235 (1989) (oversecured interest and fees not dependent on contract terms)
- Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (1988) (undersecured creditor not entitled to postpetition interest; value comparison)
- In re T-H New Orleans Ltd. P'ship, 116 F.3d 790 (5th Cir. 1997) (flexible/continuous valuation approach for 506(b) purposes)
- Urban Communicators PCS L.P. v. Gabriel Capital, L.P., 379 B.R. 232 (S.D.N.Y. 2008) (sale price used as value after collateral sale; oversecured status upheld)
- In re Delta Resources, Inc., 54 F.3d 722 (11th Cir. 1995) (dual valuation approach; oversecured at sale can yield postpetition interest)
- Baybank-Middlesex v. Ralar Distribs., Inc., 69 F.3d 1200 (1st Cir. 1995) (collateral value aggregation and secured status scope)