In re: The Hertz Corporation v., 117 F.4th 109

Hertz Corporation filed for Chapter 11 bankruptcy in 2020, struggling due to the pandemic, but emerged solvent in 2021 after a reorganization plan that paid its creditors in full and gave more than $1 billion to equityholders.
The plan treated unsecured Noteholders as "unimpaired," paying their principal and pre-bankruptcy interest, but only post-petition interest at the low federal judgment rate, not the higher contractual rate, and omitted make-whole (Applicable Premium) payments.
The Noteholders objected, arguing for full payment of contractual terms, including make-whole premiums and contract-rate post-petition interest since equityholders received substantial value.
The Bankruptcy Court ruled against contract-rate post-petition interest, allowed only the federal judgment rate, and disallowed make-whole premiums as unmatured interest.
The case was certified for direct appeal; the Third Circuit reviewed whether the Bankruptcy Code’s priority and impairment rules required payment of contract-rate interest and make-whole premiums in these circumstances.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Must Hertz pay an early redemption fee on the 2024 Notes?	Contract required fee for early redemption before maturity.	Notes matured upon bankruptcy filing, so no fee due.	No fee owed—contractual maturity occurred at filing.
Are the Applicable Premiums (make-whole fees) disallowed as unmatured interest under § 502(b)(2)?	Premiums aren't "interest" by definition; not barred.	Make-whole fees are economically equivalent to disallowed unmatured interest.	Premiums are disallowed—they are the economic equivalent of interest.
Are unimpaired creditors of a solvent debtor entitled to post-petition interest at the contract rate?	Bankruptcy Code and pre-Code practice guarantees full payment in solvent cases; absolute priority rule applies.	Only the federal judgment rate is required by the Code; § 502(b)(2) bars contract rate.	Unimpaired creditors in solvent cases must receive contract-rate post-petition interest under the absolute priority rule.
Does the absolute priority rule require full payment before equity receives value, including post-petition interest and make-whole premiums?	Yes—departures from priority rules not allowed absent clear statutory language.	No—the plan paid allowed claims and Code expressly disallows further payments.	Yes—absolute priority rule is codified, requiring full payment of contractual entitlements before equity recovers.

Czyzewski v. Jevic Holding Corp., 580 U.S. 451 (2017) (absolute priority rule bars non-consensual distributions to equity ahead of creditors unless all debts are paid in full)
Deputy v. du Pont, 308 U.S. 488 (1940) (defines interest as compensation for the use or forbearance of money)
Consol. Rock Prods. Co. v. Du Bois, 312 U.S. 510 (1941) (absolute priority rule prevents equity from recovering anything unless creditors are paid in full)
Northern Pac. Ry. Co. v. Boyd, 228 U.S. 482 (1913) (establishes absolute priority principle in bankruptcy)
RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639 (2012) (pre-Code practice informs interpretation only if text is ambiguous)