(click the picture to log into ABI and read the Jan. 2016 edition)
We’d like to take a quick moment and plug shamelessly an article that I co-wrote with Richard Gaudet of HDH Advisors, LLC. Our firm does a lot of business with Richard and his group, and he was nice enough to ask me to help out on a topic that we are both quite fond of: cramdown interest rates under Till v. SCS Credit Corp, 541 U.S. 465 (2004). Specifically, we wrote an article for the American Bankruptcy Institute Journal titled “Zero Times Something is Still Zero: Adapting Till to Unsecured Creditors.” The ABI published the article in its January 2016 edition, which hit our mailboxes this afternoon.
The gist of the article is as follows:
First, Till applies to unsecured creditors, not just secured creditors.
Second, the “best interests of creditors test” (i.e., the liquidation analysis) is the starting point for determining whether an unsecured creditor is entitled to risk-based compensation under Till. If the liquidation analysis projects a dividend for an unsecured creditor, then the Till rate should compensate the creditor for the time value of money and risk of default. However, if the liquidation analysis doesn’t project a dividend for an unsecured creditor, then the Till rate should compensate the creditor for the time value of money only, without compensation for the risk of default.
Finally, if the national prime rate is used in a situation where an unsecured creditor is not entitled to compensation for risk, then even the prime rate, by itself, becomes a punitive rate. That is because the prime rate includes all of the risk-based components of an interest rate except for the debtor-specific and term risks. Therefore, risk premiums embedded in the prime rate must be excluded from the Till calculation, in favor of a nominal, time value of money rate (for variable-rate plans) or a treasury bond rate with a term that corresponds to the plan term (for fixed-rate plans).
If you’re an ABI subscriber, then you can read more here: Zero Times Something is Still Zero: Adapting Till to Unsecured Creditors.
And while we’re at it, we might as well cross-reference our prior Till post, located here.