460 B.R. 567
Bankr. D.C.2011Background
- Walkabout I (100 units) and Walkabout II (65 units) are affiliated partnerships owning adjacent Detroit-area multi-family complexes.
- Both debtors filed Chapter 11 and sought confirmation of reorganization plans; MSHDA is the sole secured creditor and opposed confirmation.
- Regulatory Agreements with MSHDA require rent reductions for certain units; debtors propose 35-year amortization and interest-only periods.
- MSHDA’s grounds: plan violates absolute priority; cramdown rates and feasibility; seeks to retain lien with 5% interest.
- Court applied Till v. SCS Credit Corp. framework to determine cramdown rate absent an efficient market, evaluating risk, costs, and feasibility.
- Judge denied confirmation, concluding the plans fail under §1129 because the proposed rate (5%) is too low to present-value MSHDA’s claim and feasibility is not established.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the plan comply with absolute priority? | MSHDA argues plan distributes to equity before full payment. | Walkabout contends no unsecured class is non-accepting; plan remains permissible. | No conflict—absolute priority not violated; but other issues control. |
| Is cramdown under §1129(b)(2)(A) satisfied for MSHDA's secured claim? | MSHDA asserts 5% rate fails present value under Till framework. | Debtors argue a rate slightly above 4.24% with risk adjustment is appropriate. | Plan rate insufficient; denial of cramdown. |
| What starting point and risk adjustment apply under Till in Chapter 11? | MSHDA bears burden to prove market rate or risk premium. | Debtors seek market-like rate; estimates rely on market data and risk factors favoring rate. | Court adopts Till formula with a risk adjustment; 5% insufficient. |
| Are the plans feasible under §1129(a)(11)? | Debtors show budgets and reserves; feasibility uncertain due to negative cash projections. | MSHDA challenges capital expenditures and reserves sufficiency; projections are not well-supported. | Feasibility not demonstrated; confirmation denied. |
Key Cases Cited
- Till v. SCS Credit Corp., 541 U.S. 465 (U.S. 2004) (formulated the prime-plus formula for cramdown rates)
- Bank of Montreal v. Official Committee of Unsecured Creditors (In re American HomePatient, Inc.), 420 F.3d 559 (6th Cir. 2005) (applies market-rate vs. formula approach in Chapter 11 cramdowns)
- General Motors Acceptance Corp. v. Jones, 999 F.2d 63 (3d Cir. 1993) (discusses cost-of-funds approach and its flaws)
- Till v. SCS Credit Corp. (cited for multiple propositions in the opinion), 541 U.S. 465 (U.S. 2004) (see Till discussion on various cramdown methods)