Momentive Performance Materials Inc. v. BOKF, NA
874 F.3d 787
2d Cir.2017Background
- Momentive Performance Materials, Inc. (MPM) filed Chapter 11 after becoming overleveraged from multiple note issuances (2006, 2009, 2010, 2012).
- Four relevant note classes: Subordinated Notes (2006), Second‑Lien springing notes (2010), First‑Lien Notes (2012), and 1.5‑Lien Notes (2012). An intercreditor agreement placed Senior‑Lien (2012) ahead of Second‑Lien liens, but priority questions arose between Second‑Lien and Subordinated notes.
- MPM’s confirmed reorganization Plan paid Senior‑Lien holders in full (cash or replacement notes), gave Second‑Lien holders equity (partial recovery), and left Subordinated holders with no recovery.
- Senior‑Lien holders rejected the Plan and received replacement notes; they challenged (a) the cramdown interest rate on replacement notes and (b) exclusion of the contractual make‑whole premium. Subordinated holders challenged the subordinated treatment of their claims vis‑à‑vis Second‑Lien notes.
- Bankruptcy and district courts confirmed the Plan: they held Second‑Lien notes were senior to Subordinated notes, denied a make‑whole premium to Senior‑Lien holders, and applied a below‑market “formula” cramdown rate; this appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Second‑Lien notes are "Senior Indebtedness" that subordinate Subordinated notes | Subordinated holders: "in any respect" in the indenture excludes Second‑Lien from Senior Indebtedness; thus Subordinated holders are not subordinated and deserve recovery | Debtors: Second‑Lien notes were intended and treated as Senior Indebtedness; disclosures and market practice confirm priority | Court: Definition ambiguous but extrinsic evidence resolves ambiguity for Debtors — Second‑Lien notes are Senior Indebtedness (affirmed) |
| Proper method to set cramdown interest rate on replacement notes | Senior‑Lien holders: use an ascertainable market rate (what a willing arms‑length lender would charge) | Debtors: apply Till plurality "formula" (prime/treasury plus risk adjustment); market factors irrelevant | Court: Error to categorically ignore market. Adopt two‑step approach (if efficient market exists, use market rate; if not, use formula). Remand for market inquiry (reversed in part) |
| Entitlement to contractual make‑whole premium on replacement notes | Senior‑Lien holders: Optional Redemption and Acceleration clauses require make‑whole when notes are repaid/replaced post‑petition; rescission of acceleration should be allowed | Debtors: bankruptcy‑triggered automatic acceleration makes any post‑petition payment post‑maturity (not an optional pre‑payment/redemption); rescission barred by automatic stay; Optional Redemption not triggered | Court: Followed AMR — no make‑whole: payment was post‑maturity due to automatic acceleration; rescission barred by automatic stay (affirmed) |
| Whether appeals are equitably moot given Plan consummation | Appellants: diligently sought stays and appeals; relief is feasible without unraveling Plan | Debtors: remand relief would disrupt negotiated Plan and reorganization emergence | Court: Appeals not equitably moot — appellants sought stays; remand limited to interest‑rate inquiry and would not unravel Plan (appeals preserved) |
Key Cases Cited
- Till v. SCS Credit Corp., 541 U.S. 465 (2004) (plurality endorsing a prime‑plus “formula” for cramdown interest in Chapter 13 and noting Chapter 11 market may be relevant)
- Rake v. Wade, 508 U.S. 464 (1993) (deferred payments must equal full present value of secured claim)
- In re AMR Corp., 730 F.3d 88 (2d Cir. 2013) (post‑petition automatic acceleration converts payments to post‑maturity and forecloses make‑whole recovery; rescission barred by automatic stay)
- Bank of America Nat’l Trust & Sav. Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S. 434 (1999) (market exposure is preferred method for valuation in Chapter 11 cramdown contexts)
- Chateaugay II (In re Chateaugay Corp.), 10 F.3d 944 (2d Cir. 1993) (sets factors for equitable mootness of bankruptcy appeals)
- In re Metromedia Fiber Network, Inc., 416 F.3d 136 (2d Cir. 2005) (discusses importance of stay‑seeking in equitable mootness analysis)