U.S. Bank National Ass'n v. Wilmington Savings Fund Society (In re MPM Silicones, LLC), 531 B.R. 321

Background

Momentive Performance Materials Inc. and affiliated debtors (Debtors) filed Chapter 11 on April 13, 2014; the joint Chapter 11 plan was confirmed after bench rulings on August 26 and September 9, 2014 and a written order on September 11, 2014.
Debtors had issued subordinated notes under a 2006 Indenture (Subordinated Notes) and later issued Second Lien Notes (2010) and senior secured notes (1.5 Lien and First Lien Notes in 2012) secured on common collateral governed by an intercreditor agreement.
The Plan provides no recovery to Subordinated Noteholders; Second Lien Noteholders received treatment under the Plan as Senior Indebtedness and Senior Lien Noteholders were to receive cash or replacement notes but no make-whole if they voted against the Plan.
Disputes on appeal: (1) U.S. Bank (indenture trustee for Subordinated Noteholders) argued Second Lien Notes are not Senior Indebtedness so subordinated holders must get distributions; (2) BOKF and Wilmington Trust (trustees for Senior Lien Noteholders) challenged the cramdown interest rate and sought a make-whole premium under the 2012 Indentures.
Bankruptcy and district courts applied New York contract law to interpret indentures and used the Till formula approach (with a Treasury base + risk premium) for cramdown rate; the court rejected a market-based (efficient market) approach and denied the make-whole claim because acceleration in bankruptcy converted maturity and did not unambiguously preserve a make-whole right.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Second Lien Notes qualify as "Senior Indebtedness" under the 2006 Indenture, making Subordinated Notes junior and entitled to no distribution	U.S. Bank: the 2006 Indenture’s phrase "subordinate or junior in any respect" covers lien subordination, so Second Lien Notes are not Senior Indebtedness and Subordinated Noteholders must share recovery	Debtors: the Indenture’s base definition and provisos refer only to payment subordination; lien subordination does not remove Senior Indebtedness status	Court: Second Lien Notes are Senior Indebtedness because the Indenture unambiguously excludes only payment (not lien) subordination; Plan does not violate §1129(b)
Appropriate method to set cramdown interest rate for secured creditors who receive deferred payments	Senior Lien Appellants: use an efficient-market (market/exit financing) rate to put creditors where a new-market loan would	Debtors: apply Till formula (risk-free base + risk premium) to approximate present value, avoiding market profit/transaction-cost components	Court: affirm Till/formula approach in Chapter 11 under Second Circuit precedent (Valenti); bankruptcy court reasonably used 7‑year Treasury + risk premium
Whether Senior Lien Noteholders are entitled to make-whole premium upon Debtors’ Chapter 11 filing	Senior Lien Appellants: filing/redemption before specified date triggers make-whole premium	Debtors: automatic acceleration on voluntary bankruptcy makes debt immediately due; repayment after acceleration is not a prepayment/redemption triggering make-whole absent clear, unambiguous contract language	Court: no make-whole—acceleration was mandatory on voluntary filing and neither the acceleration clause nor make-whole clause clearly and unambiguously required payment upon bankruptcy-triggered acceleration

Key Cases Cited

Till v. SCS Credit Corp., 541 U.S. 465 (formula approach for cramdown interest rate; risk-free base + risk premium)
In re AMR Corp., 730 F.3d 88 (2d Cir.) (interpretation of acceleration and effect of bankruptcy-triggered acceleration on prepayment/make-whole)
In re Valenti, 105 F.3d 55 (2d Cir.) (rejecting efficient-market approach; cramdown rate should not include lender profit)
In re Ames Dep’t Stores, Inc., 582 F.3d 422 (2d Cir.) (standard of review for bankruptcy appeals)
In re Metromedia Fiber Network, Inc., 416 F.3d 136 (2d Cir.) (equitable mootness principles)