450 B.R. 474
Bankr. D. Del.2011Background
- Debtors filed voluntary chapter 11 petitions in the Delaware Bankruptcy Court on August 25, 2011.
- The Obligation was issued in 1999 to finance two vessels and is governed by a trust indenture; the Indenture Trustee is Bank of New York Mellon Trust Company, N.A.
- MARAD provided a government guarantee on interest and principal under the Guarantee, secured by a lien on the vessels via the Security Agreement.
- The Debtors sold the vessels to Odyssea Vessels, Inc. for $13 million; at sale, the Debtors paid the Indenture Trustee $4,555,489 and reserved approximately $535,000 in the MARAD Escrow for a Make-Whole Premium dispute.
- A Sale Order authorized the sale and reserved the Make-Whole Premium issue for resolution, stating the Debtors would pay from the MARAD Escrow the allowed amount of the Make-Whole Premium if resolved.
- The Indenture Trustee claims a Make-Whole Premium of about $511,849.01; the Debtors contest the premium’s entitlement and its secured status, seeking payment only if properly allowed and not outside the plan.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Make-Whole Premium 'interest' covered by MARAD Guarantee? | Debtors argue the Make-Whole Premium is not unmatured interest and thus not within the Guarantee. | Indenture Trustee asserts the Make-Whole Premium is part of the Obligation and within the Guarantee's scope as interest. | Make-Whole Premium is not interest; not covered by the Guarantee. |
| If not covered by the Guarantee, may Make-Whole Premium be paid in full from the MARAD Escrow outside the Debtors' plan? | Indenture Trustee seeks full payment outside the plan per the Sale Order. | Debtors argue the Sale Order cannot convert an unsecured claim into secured payment outside the plan. | No; the Make-Whole Premium is unsecured and may be paid only pro rata under the plan, not in full outside the plan. |
Key Cases Cited
- In re Ridgewood Apartments of DeKalb County, Ltd., 174 B.R. 712 (Bankr.S.D. Ohio 1994) (prepayment penalties treated as unmatured interest or liquidated damages depending on context)
- In re 360 Inns, Ltd., 76 B.R. 573 (Bankr. N.D. Tex. 1987) (prepayment penalty generally not unmatured interest)
- In re Lappin Elec. Co., 245 B.R. 326 (Bankr. E.D. Wis. 2000) (majority view treats make-whole as liquidated damages, not unmatured interest)
- In re Outdoor Sports Headquarters, Inc., 161 B.R. 414 (Bankr. S.D. Ohio 1993) (prepayment premiums typically liquidated damages)
- In re Skyler Ridge, 80 B.R. 500 (Bankr. C.D. Cal. 1987) (liquidated damages fully mature at breach)
- In re Cendant Corp. Sec. Litig., 454 F.3d 235 (3d Cir. 2006) (contract interpretation of sale orders and enforceability)