MPM Silicones, L.L.C.

Filing

OPINION, affirming in part, reversing in part and remanding for further proceedings consistent with this opinion, by JAC, RSP, BDP, C.JJ., FILED.[2152498] [15-1682, 15-1824]

Case 15-1682, Document 256-1, 10/20/2017, 2152498, Page1 of 30

Nos. 15-1771; 15-1682; 15-1824
In re MPM Silicones, LLC

In the

United States Court of Appeals
For the Second Circuit
________
August Term, 2016
____________________________________________________________

In the Matter of: MPM Silicones, L.L.C.
____________________________________________________________
Nos. 15-1682 (L); 15-1824 (CON)
MOMENTIVE PERFORMANCE MATERIALS INCORPORATED, APOLLO GLOBAL
MANAGEMENT, LLC, AD HOC COMMITTEE OF SECOND LIEN HOLDERS,
Plaintiffs-Appellees,

v.
BOKF, NA, AS FIRST LIEN TRUSTEE, WILMINGTON TRUST, N.A., AS 1.5 LIEN
TRUSTEE,

Defendants-Appellants.
____________________________________________________________
No. 15-1771
U.S. BANK NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE,
Plaintiff-Appellant,

v.

Case 15-1682, Document 256-1, 10/20/2017, 2152498, Page2 of 30

WILMINGTON SAVINGS FUND SOCIETY, FSB, AS SUCCESSOR INDENTURE
TRUSTEE, MOMENTIVE PERFORMANCE MATERIALS INCORPORATED, AD HOC
COMMITTEE OF SECOND LIEN NOTEHOLDERS, APOLLO MANAGEMENT, LLC,
AND CERTAIN OF ITS AFFILIATED FUNDS,

Defendants-Appellees.
____________________________________________________________
Appeals from the United States District Courtfor the Southern District of New
York.Vincent L. Briccetti, Judge.
________
Submitted: November 9, 2016
Decided: October 20, 2017
________
Before: CABRANES, POOLER, and PARKER, Circuit Judges.
________
Three groups of creditors separately appeal a judgment of the United
States District Court of the Southern District of New York (Briccetti, J.)
affirming the confirmation of Debtors= Chapter 11 reorganization plan by the
U.S. Bankruptcy Court (Drain, J.). The creditors argue that the plan
improperly eliminated or reduced the value of notes they held.
Debtors argue
that the plan was properly confirmed and that these appeals should be dismissed
as equitably moot. With one exception, we conclude that the plan confirmed
by the bankruptcy court and affirmed by the district court comports with the
provisions of Chapter 11. We remand so that the bankruptcy court can address
the single deficiency we identify with the proceedings below which is the
process for determining the proper interest rate under the cramdown provision
of Chapter 11. We decline to dismiss these appeals as equitably moot.
________
DOUGLAS HALLWARD-DRIEMEIER, Ropes & Gray LLP,
Washington D.C.; MARK R. SOMERSTEIN, MARK I. BANE,
Ropes & Gray, New York, NY, for Wilmington Trust,

National Association as Indenture Trustee for the 1.5 Lien
2

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Notes.
DANIELLE SPINELLI, JOEL MILLAR, Wilmer Cutler
Pickering Hale and Dorr LLP, Washington, D.C.; PHILIP
D. ANKER, ALAN E. SCHOENFELD, Wilmer Cutler
Pickering Hale and Dorr LLP, New York, NY; MICHAEL
J. SAGE, BRAIN E. GREER, Dechert LLP, New York, NY,
G. ERIC BRUNSTAD, JR., Dechert LLP, Hartford, CT, for

BOKF, NA as First Lien Trustee.
SUSHEEL KIRPALANI, Quinn Emanuel Urquhart &
Sullivan, LLP, New York, NY; ROY T. ENGLERT, JR.,
MARK T. STANCIL, ALAN E. UNTEREINER, MATTHEW M.
MADDEN, Robbins, Russell, Englert, Orseck, Untereiner
& Sauber LLP, Washington, D.C., for U.S. Bank National
Association, as Indenture Trustee.
IRA S. DIZENGOFF, ABID QURESHI, BRIAN T. CARNEY,
Akin Gump Strauss Hauer & Feld LLP, New York, NY;
PRATIK A. SHAH, JAMES E. TYSSE, Z.W. JULIUS CHEN,
Akin Gump Strauss Hauer & Feld LLP, Washington,
D.C., for Momentive Performance Materials Inc. and

Apollo Management, LLC, and certain of its affiliated
funds.
JOSEPH T. BAIO, JAMES C. DUGAN, Willkie Farr &
Gallagher LLP, New York, NY, for Momentive
Performance Materials Inc.
DENNIS F. DUNNE, MICHAEL L. HIRSCHFELD, Milbank,
Tweed, Hadley & McCloy LLP, New York, NY, for Ad
Hoc Committee of Second Lien Noteholders.
SETH H. LIEBERMAN, PATRICK SIBLEY, Pryor Cashman
LLP, New York, NY, for Wilmington Savings Fund
Society, FSB, as Successor Indenture Trustee.

3

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RONALD J. MANN, Columbia Law School, New York,
NY, for Amici Curiae Loan Syndications and Trading

Association, the Managed Funds Association, and the
Securities Industry and Financial Markets Association.
________
BARRINGTON D. PARKER, Circuit Judge:
These appeals by three groups of creditors challenge various aspects of
Appellee Momentive Performance Materials, Inc.=s (AMPM,@) substantially
consummated plan of reorganization under Chapter 11 of the U.S. Bankruptcy
1
Code. With one exception, we conclude that the reorganization plan (the
APlan@) confirmed by the bankruptcy court and affirmed by the district court
comports with Chapter 11. We remand so that the bankruptcy court can
address the single deficiency we identify in the proceedings below, which is the
process for determining the proper interest rate under the cramdown provision
of Chapter 11.
I

1

Momentive Performance Materials, Inc.=s

AMPM,@ and with affiliated debtors, ADebtors@.

4

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MPM, a leading producer of silicone, faced serious financial problems
2
after it took on significant new debt obligations beginning in the mid-2000s.
See 15-1771 JA 286-88; 15-1682 JA 1605-06. 3 Following these debt
issuances, MPM was substantially overleveraged, and ultimately filed a petition
under Chapter 11. The four relevant classes of notes issued by MPM are as
follows:
Subordinated Notes.
In 2006, MPM issued $500 million in
subordinated unsecured notes (the ASubordinated Notes@) pursuant to an
indenture (the A2006 Indenture@). 15-1771 JA 303. Appellant U.S. Bank is
the indenture trustee for the Subordinated Notes. In 2009 MPM issued secured
second-lien notes and offered the Subordinated Notes holders the option of
exchanging their notes for the newly-issued second-lien notes.
The
second-lien notes were offered at a 60% discount but were secured. 15-1771
JA 2241. Holders of $118 million of the Subordinated Notes accepted the
offer, leaving $382 million in unsecured Subordinated Notes outstanding.
15-1771 JA 2241.
Second-Lien Notes. In 2010, MPM issued approximately $1 billion
in Aspringing@ second-lien notes (the ASecond-Lien Notes@). 15-1682 JA 1616;
15-1771 JA 476. The Second-Lien Notes were to be unsecured until the $118
million of previously exchanged Subordinated Notes were redeemed, at which
point the Aspring@ in the lien would be triggered. 15-1771 JA 517, 580-81.
Once triggered, the Second-Lien Notes would then (but only then) obtain a
security interest in the Debtor=s collateral. The exchanged Subordinated Notes
were redeemed in November 2012, 15-1771 JA 721, at which point the trigger
The facts recounted herein derive principally from the bankruptcy court=s decision
confirming Debtors= reorganization plan, In re MPM Silicones, LLC, 2014 WL 4436335
(Bankr. S.D.N.Y. Sept. 9, 2014), aff=d 531 B.R. 321 (S.D.N.Y. 2015), as well as the public
disclosures made part of the record. We rely on the facts recounted in the bankruptcy
court=s ruling in light of our Aoblig[ation] to accept the bankruptcy court=s undisturbed
findings of fact unless they are clearly erroneous.@ Brunner v. New York State Higher Educ.
Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987).
2

As discussed, infra note 4, we resolve with this opinion three separate appeals. Our
citations to the respective records will begin with the relevant docket number on appeal,
and references to AJA@ are to the respective joint appendices filed with that appeal. For
example, our citation to A15-1771 JA 286-88" is to pages 286-88 of the joint appendix filed in
the appeal brought by U.S. Bank, docketed No. 15-1771.
3

5

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occurred and the Second-Lien Notes became secured with second-priority liens
junior to other pre-existing liens on the Debtors= collateral. A primary issue on
this appeal is whether the Second-Lien Notes have priority over the
Subordinated Notes .
Senior-Lien Notes. In 2012, MPM again issued more debt, this time in
the form of two classes of senior secured notes. Specifically, MPM issued
$1.1 billion in first-lien secured notes (the AFirst-Lien Notes@), and $250 million
in 1.5-lien secured notes (the A1.5-Lien Notes,@ and, with the First-Lien Notes,
the ASenior-Lien Notes@). 15-1682 JA 1615. Appellants BOKF and
Wilmington Trust are the indenture trustees for the First-Lien Notes and
1.5-Lien Notes, respectively. Pursuant to the governing indentures (the A2012
Indentures@), the Senior-Lien Notes were to be repaid in full by their maturity
date of October 15, 2020. They carried fixed interest rates of 8.875% and 10%,
respectively. The 2012 Indentures also called for the recovery of a
Amake-whole@ premium if MPM opted to redeem the notes prior to maturity.
Because the Second-Lien Notes and the Senior-Lien Notes are secured by the
same collateral, the holders of those notes executed an intercreditor agreement
(the AIntercreditor Agreement@), which provided that the Senior-Lien Notes
stood in priority to the Second-Lien Notes as to their respective liens, but that
each was junior to pre-existing liens on MPM=s collateral. 15-1771 JA
691-718. Other primary issues on this appeal are whether the Senior-Lien
Note holders are entitled to the make-whole adjustment and the cramdown
interest rate they are entitled to if their Notes are replaced under the Plan.
II
After these notes were issued, MPM experienced significant financial
problems. See 15-1771 JA 284-88. In April 2014, MPM filed a petition
under Chapter 11 and ultimately submitted a reorganization plan to the
bankruptcy court. 15-1682 JA 3841-912. Several elements of that Plan are
at issue on these appeals. The Plan provided for (i) a 100% cash recovery of
the principal balance and accrued interest on the Senior-Lien Notes; (ii) an
estimated 12.8%-28.1% recovery on the Second-Lien Notes in the form of
equity in the reorganized Debtors; but (iii) no recovery on the Subordinated
Notes. 15-1771 JA 271-74.
The Plan also gave the Senior-Lien Notes holders the option of (i)
accepting the Plan and immediately receiving a cash payment of the outstanding
6

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principal and interest due on their Notes (without a make-whole premium), or
(ii) rejecting the Plan, receiving replacement notes Awith a present value equal
to the Allowed amount of such holder=s [claim],@ and then litigating in the
bankruptcy court issues including whether they were entitled to the make-whole
premium and the interest rate on the replacement notes. 15-1771 JA 271-72;
15-1682 JA 3873-75. The Senior-Lien Notes holders rejected the Plan, and,
thus, elected the latter option.
The appellants hereCthe Subordinated Notes holders and the
Senior-Lien Notes holdersCopposed the Plan. (The Second-Lien Notes
holders unanimously accepted it.) The Subordinated Notes holders, who were
to receive nothing, contended that, under relevant indenture provisions, their
Notes were not subordinate to the Second-Lien Notes holders
and,
consequently, they were entitled to some recovery. The Senior-Lien Notes
holders opposed the Plan on the ground that the replacement notes they received
did not provide for the make-whole premium, and carried a largely risk-free
interest rate that failed to comply with the Code because it was well below
ascertainable market rates for similar debt obligations and thus was not fair and
equitable because it failed to give them the present value of their claim.
Despite these objections, the bankruptcy court confirmed the Plan
following a four-day hearing. In re MPM Silicones, LLC, 2014 WL 4436335
(Bankr. S.D.N.Y. Sept. 9, 2014), aff=d, 531 B.R. 321 (S.D.N.Y. 2015).
Confirmation was facilitated by Chapter 11's Acramdown@ provision, which
allows a bankruptcy court to confirm a reorganization plan notwithstanding
non-accepting classes if the plan Adoes not discriminate unfairly, and is fair and
equitable, with respect to each class of claims or interests that is impaired under,
and has not accepted, the plan.@ 11 U.S.C. ' 1129(b)(1).
The bankruptcy court concluded that the Plan was fair to the
Subordinated Notes holders, despite no recovery, because the 2006 Indenture
called for their subordination to the Second-Lien Notes. In re MPM Silicones,
LLC, 2014 WL 4436335, at *2-*11. It held the plan was fair to the
Senior-Lien Notes holders because the 2012 Indentures did not require payment
of the make-whole premium in the bankruptcy context and because the interest
rate on the proposed replacement notes, even though well below a Amarket@
rate, was determined by a formula that complied with the Code=s cramdown
provision. Id. at *11-*32.
7

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The bankruptcy court=s confirmation order triggered an automatic 14-day
stay during which Debtors could not consummate the
Plan. See Fed. R. Bankr. P. 3020(e). Appellants aggressively took advantage
of this period and attempted to block the implementation of the Plan.
Specifically, prior to the expiration of the automatic stay, appellants moved in
the bankruptcy court to extend the stay pending their appeal of the confirmation
order, which the court denied. See 15-1682 JA 4099, 4173. They then
promptly moved the district court for a stay, which was also denied. See
15-1682 JA 183, 185. Appellants then appealed the denial of the stay to this
Court, and we dismissed the appeal for lack of jurisdiction. 15-1682 JA
4872-73. Despite these efforts, the Debtors contend this appeal is equitably
moot, a contention with which we do not agree.
The appellants appealed the confirmation order to the district court
which affirmed the bankruptcy court=s confirmation order. 531 B.R. 321.
The district court essentially agreed with the bankruptcy court, concluding that:
(i) the relevant indentures unambiguously prioritize the Second-Lien Notes over
the Subordinated Notes, id. at 326B31; (ii) the below market interest rate
selected by the bankruptcy court complied with the Code, id. at 331B34; and
(iii) under their indentures, the Senior-Lien Notes holders are not entitled to the
make-whole premium in the context of a bankruptcy, id. at 335B38. The
Subordinated Notes holders, the First-Lien Notes holders, and the 1.5-Lien
4
Notes holders separately appealed.

The appeals by the First-Lien Notes holders (No. 15-1682) and 1.5-Lien Notes holders
(No. 15-1824) were consolidated and heard in tandem with the appeal by the
Subordinated Notes holders (No. 15-1771).
4

8

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III
AWe exercise plenary review over a district court=s affirmance of a
bankruptcy court=s decisions, reviewing de novo the bankruptcy court=s
conclusions of law, and reviewing its findings of facts for clear error.@ In re
Lehman Bros., Inc., 808 F.3d 942, 946 (2d Cir. 2015) (internal quotation marks
omitted).
IV
These appeals raise four issues. First, the Subordinated Notes
holders challenge the lower courts= conclusions that their claims are subordinate
to the Second-Lien Notes holders= claims. Second, the Senior-Lien Notes
holders contend that the lower courts erroneously applied a below-market
interest rate to their replacement notes. Third, the Senior-Lien Notes holders
challenge the lower courts= rulings that they are not entitled to a make-whole
premium. Finally, Debtors argue that we should dismiss these appeals as
equitably moot. We find merit only in the Senior-Lien Notes holders=
contention with respect to the method of calculating the appropriate interest rate
for the replacement notes. We reject the others.
A
The lower courts concluded that the Plan, which provided no distribution
to the Subordinated Notes holders, complied with the governing 2006 Indenture.
The Subordinated Notes holders argue this conclusion was erroneous because,
under the terms of the 2006 Indenture, their claims are not subordinate to the
Second-Lien Notes, whose holders recovered under the plan. The Debtors, on
the other hand, contend that the 2006 Indenture gives the Second-Lien Notes
priority over the Subordinated Notes. We agree with the Debtors, although for
somewhat different reasons from the lower courts which found the relevant
indenture provisions unambiguous. We find them to be ambiguous, but resolve
the ambiguities in favor of the Debtors.
The Subordinated Notes holders= argument begins with Section 10.01 of
the 2006 Indenture, which states that the Subordinated Notes are Asubordinated
in right of payment . . . to the prior payment in full of all existing and future
9

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Senior Indebtedness of the Company,@ and that Aonly Indebtedness of the
Company that is Senior Indebtedness of the Company shall rank senior to the
Securities in accordance with the provisions set forth herein.@ 15-1771 JA 404.
Accordingly, the Second-Lien Notes stand in priority to the Subordinated Notes
only if they constitute ASenior Indebtedness.@
ASenior Indebtedness@ in the 2006 Indenture begins with what the parties
refer to as the ABaseline Definition,@ which defines Senior Indebtedness as:
all Indebtedness . . . unless the instrument creating or
evidencing the same or pursuant to which the same is
outstanding expressly provides that such obligations are
subordinated in right of payment to any other Indebtedness of
the Company . . .
15-1771 JA 341.
It is undisputed that the Second-Lien Notes are not subordinated in right
of payment to any other indebtedness and that therefore they satisfy the
Baseline Definition of Senior Indebtedness. However, the Baseline Definition
is then subject to six enumerated exceptions, the fourth of which (the AFourth
Proviso@) excepts from Senior Indebtedness:
any Indebtedness or obligation of the Company . . . that by its
terms is subordinate or junior in any respect to any other
Indebtedness or obligation of the Company . . . including any
Pari Passu Indebtedness.
15-1771 JA 342 (emphasis added).
The Subordinated Notes holders argue that the Fourth Proviso carves out
the Second-Lien Notes from the Baseline Definition, i.e., that the Second-Lien
Notes are an A[i]ndebtedness or obligation of the Company . . . that by its terms
is subordinate or junior in any respect to any other Indebtedness of the
Company.@ The Subordinated Notes holders rely heavily on the Ain any respect@
language. They argue that the Second-Lien Notes are subordinate to, for
example, the First-Lien NotesCbecause, pursuant to the Intercreditor
Agreement, the liens supporting the Second-Lien Notes are junior to the liens
10

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supporting the First-Lien NotesCand that they are therefore subordinate to other
Indebtedness of the company.
The lower courts rejected this argument, and concluded that the
Second-Lien Notes unambiguously constitute Senior Indebtedness despite the
Fourth Proviso. They did so in reliance on a distinction between Alien
subordination@ and Apayment (or debt) subordination,@ concluding that the
Fourth Proviso unambiguously carves out from the Baseline Definition only the
5
latter and not the former. Because the Second-Lien Notes are not subordinate
in payment to other note classesCbut rather, the liens supporting their notes are
subordinateCthe lower courts concluded that the Second-Lien Notes are not
covered by the Fourth Proviso.

The district court discussed in some detail the distinction between lien subordination
and payment/debt subordination. 531 B.R. at 328. In short, A[l]ien subordination
involves two senior creditors with security interests in the same collateral, one of which
has lien priority over the other. . . . By contrast, in payment subordination, the senior
lender enjoys the right to be paid first from all assets of the borrower or any applicable
guarantor, whether or not constituting collateral security for the senior or subordinated
lenders.@ Id.

5

11

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We do not agree with the lower courts that the Fourth Proviso
unambiguously incorporates a distinction between lien subordination and
payment subordination. Rather, we conclude that the Fourth Proviso renders
the definition of Senior Indebtedness ambiguous as to whether it includes the
Second-Lien Notes. Nevertheless, we conclude that this ambiguity should be
resolved in Debtors= favor given the plethora of evidence in the record that the
parties intended the Second-Lien Notes to be Senior Indebtedness.
1
As discussed, the lower courts concluded that the Second-Lien Notes are
unambiguously Senior Indebtedness. Under New York law, which governs
the Indenture, a fundamental objective of contract interpretation is to give effect
to the expressed intention of the parties. The initial inquiry is whether the
contractual language, without reference to sources outside the text of the
contract, is ambiguous. Contract language is ambiguous if it is capable of
more than one meaning.
We are not persuaded by the Debtors= (and lower courts=) conclusion that
the Fourth Proviso=s reference to Asubordinate . . . in any respect@
unambiguously refers only to payment subordination and not to lien
subordination. The Debtors read the Fourth Proviso as if it states Asubordinate
. . . in right of payment,@ which of course it does not. In so doing, the Debtors
disregard the breadth of the term Ain any respect,@ a term which is generally
6
thought to be as broadly encompassing as possible. And, as a practical
matter, it seems to us illogical to believe that a second-lien holder does not
possess an obligation that is meaningfully subordinate in some respect to a
first-lien holder. These sophisticated parties knew how to cabin the type of
subordination to which they refer; the indenture uses the term Asubordinate . . .
in right of payment@ many times, including in the Baseline Definition itself.

Debtors= attempt to downplay the significance of the term Ain any respect@ in this
context is unconvincing given that the term appears nowhere else in the indenture other
than in the Fourth Proviso.

6

12

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Moreover, the Debtors= interpretation renders language in the indenture
superfluous, which is a common sign of ambiguity. See RJE Corp. v.
Northville Indus. Corp., 329 F.3d 310, 314 (2d Cir. 2003) (in assessing
ambiguity, courts consider the entire contract Ato safeguard against adopting an
interpretation that would render any individual provision superfluous@ (internal
quotation marks omitted)); see also Lawyers= Fund for Client Protection of State
of N.Y. v. Bank Leumi Trust Co. of New York, 94 N.Y.2d 398, 404 (N.Y.
2000) (concluding that an interpretation that renders a portion of a contract
superfluous is Aunsupportable: under standard principles of contract
interpretation).
Specifically, if the Fourth Proviso only excepts debt
subordinate in right of payment, there is no purpose for the Ain right of
payment@ carve-out in the Baseline Definition. We disagree with the lower
courts= attempts to interpret away this superfluity by finding a distinction
between Aexpressly@ (in the Baseline Definition) and Aby its terms@ (in the
Fourth Proviso). We see no meaningful distinction between those terms.
Nevertheless, we also conclude that the Subordinated Notes holders=
interpretation, that the Fourth Proviso unambiguously excludes the Second-Line
Notes from the definition of Senior Indebtedness, is incorrect. As the lower
courts correctly concluded, the Subordinated Notes holders= interpretation
renders key parts of the Baseline Definition superfluous. Under their reading,
that definition excludes from Senior Indebtedness only obligations subordinate
Ain right of payment,@ but the Fourth Proviso excludes all obligations that stand
behind any type of other obligation. If so, the Baseline Definition=s more
limited carve-out for debt subordinate Ain right of payment@ would be
unnecessary, because all such debt would be carved out from the definition of
Senior Indebtedness by the Fourth Proviso.
As the Subordinated Notes holders correctly acknowledge, A[f]or this
indenture, it simply is not possible to avoid superfluity.@ 15-1771 Br. of
Appellant 54 (internal quotation marks omitted). Where, as here, varying
interpretations render contractual language superfluous, we are not obligated to
arbitrarily select one as opposed to another. Because the 2006 Indenture is
13

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open to differing reasonable interpretations as to whether the Second-Lien
Notes constitute Senior Indebtedness, we conclude that it is ambiguous as a
matter of law.
2
Where a contract term is ambiguous, we look to extrinsic evidence to
determine the intention of the parties. That evidence can include the parties=
apparent intention, Walk-In Medical Centers, Inc. v. Breuer Capital Corp., 818
F.2d 260, 264 (2d Cir. 1987), what would be commercially reasonable,
Fundamental Long Term Care Holdings, LLC v. Cammeby=s Funding LLC, 20
N.Y.3d 438, 445 (2013), and the Aparties= interpretation of the contract in
practice, prior to litigation,@ Ocean Transp., Inc. v. American Philippine Fiber
Indus., Inc., 743 F.2d 85, 91 (2d Cir. 1984). Applying these tools, we
conclude, as did the district court, that the parties understood that the
Second-Lien Notes constituted Senior Indebtedness. See 531 B.R at 331 n.7.
First, MPM repeatedly represented to the Securities Exchange
Commission and to the financial community that the Second-Lien Notes were
Senior Indebtedness. It did so in its prospectuses, 8-Ks and 10-Ks. For
example, it disclosed in a November 2010 8-K that the Second-Lien Notes are
Asenior indebtedness of the Company . . . and will rank . . . senior in right of
payment to all existing and future subordinated indebtedness.@ 15-1771 JA
3057; see also 15-1771 JA 2231. It went further when it subsequently resold
certain Subordinated Notes. In a May 2013 prospectus, MPM restated that the
Subordinated Notes Aare subordinated to all our existing and future senior debt,
including the . . . Second-Priority Springing-Lien Notes.@ MPM also
specifically identified as the first risk related to the Subordinated Notes that
those holders= Aright to receive payments on the Notes is junior to those lenders
who have a security interest in our assets.@ 15-1771 JA 3007, 3010. MPM
further asserted that in the event it were to file for bankruptcy and were unable
to repay its secured debt, Ait is possible that there would be no assets remaining
from which your claims could be satisfied.@ 15-1771 JA 3010. The
14

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Subordinated Note holders knew all of this because the Debtors were
contractually obligated, pursuant to Section 4.02 of the 2006 Indenture, to
provide copies of its 10-Ks, 10-Qs, 8-Ks, and all other required disclosures both
to the Subordinated Note holders as well as to their TrusteeCa highly
sophisticated group of investors. 15-1771 JA 357. There is no dispute that
these disclosures occurred. Consequently, it was widely understood in the
investment community that the Second-Lien Notes had priority.
Second, the Subordinated Notes holders= interpretation generates the
irrational outcome that the springing of the Second-Lien Notes= security interest,
which was meant to enhance the note holders= protection, would actually strip
those notes of their status as Senior Indebtedness and therefore their priority
over the Subordinated Notes. As the bankruptcy court concluded, A[t]here is no
logical reason for such a distinction, notwithstanding the subordinated
noteholders= attempt to find one.@ 2014 WL 4436335, at *9.
Third, the Subordinated Notes holders= proposed interpretation that Ain
any respect@ covers all junior liens would mean that no senior note classes would
qualify as Senior Indebtedness because each was secured in some respect by a
junior lien. For example, the First-Lien Notes were secured in part by a second
priority lien on collateral securing a prepetition revolving credit facility. See
15-1771 JA 2425-26. We think it highly improbable that anyone understood
this interpretation to be correct. Certainly MPM did not. For example, in a
December 2012 prospectus MPM represented to the SEC that the Senior-Lien
Notes were Senior Indebtedness. 15-1771 JA 3725. Because those note
classes are subordinate to pre-existing liens as to the Debtors= collateral, they,
too, would seemingly not qualify as Senior Indebtedness under the Subordinated
Notes holders= interpretation. In light of these factors, we have little trouble
concluding that the extrinsic evidence establishes that the most reasonable
interpretation of the Indenture is that the Second-Lien Notes are Senior
Indebtedness. The judgment of the district court on that issue is, therefore,
affirmed.

15

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B
As a consequence of rejecting the Plan, the Senior-Lien Notes holders
received replacement notes which pay out their claim over time. The Code
permits debtors to make such Adeferred cash payments@ to secured creditors (i.e.,
to Acramdown@). 11 U.S.C. ' 1129(b)(2)(A)(i)(II). However, those payments
must ultimately amount to the full value of the secured creditors= claims. Id.
To ensure the creditor receives the full present value of its secured claim, the
deferred payments must carry an appropriate rate of interest. See Rake v.
Wade, 508 U.S. 464, 472 n.8 (1993).
The rate selected by the lower courts for the Senior-Lien Note holders=
replacement notes was based on the Aformula@ rate. The bankruptcy court
selected interest rates of 4.1% and 4.85%, respectively, which were largely
risk-free rates slightly adjusted for appropriate risk factors. It is not disputed
that this rate is below market in comparison with rates associated with
comparable debt obligations. The Debtors defend the application of the
Aformula@ method on the ground that it is required by the plurality opinion in the
Chapter 13 case of Till v. SCS Credit Corp., 541 U.S. 465 (2004).
The Senior-Lien Notes holders contend that because this rate is too low,
the Plan is not Afair and equitable@ as required by ' 1129(b). They argue that
the lower courts should have applied a market rate of interest which is the rate
MPM would pay to a contemporaneous sophisticated arms-length lender in the
open market. The Senior-Lien Notes holders argued in the bankruptcy court
that such a market exists and would generate interest in the 5-6+% range. See
15-1682 JA 464, 1941. 7
Debtors= reorganization plan proposed interest rates of 3.6% and 4.09%. See 2014 WL
4436335, at *24. However, the bankruptcy court concluded that those rates should be
increased by 0.5% and 0.75%, respectively, in light of the fact that the base interest rate
was pegged to the Treasury rate, rather than the prime rate (which reflects additional
risk). Id. at *32. On appeal to the district court, the Senior-Lien Notes holders argued
the bankruptcy court erred in not requiring the prime rate, an argument the district court
rejected. 531 B.R. at 334-35. The Senior-Lien Notes holders do not press this argument
here.

7

16

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The bankruptcy court rejected this approach, and concluded that a
cramdown interest rate should Anot take market factors into account.@ 2014 WL
4436335, at *25. Viewing itself as Alargely governed by the principles
enunciated by the plurality opinion in Till v. SCS Credit Corp., 541 U.S. 465
(2004),@ it concluded that the proper rate was what the plurality in Till referred
to as the Aformula@ or Aprime-plus@ rate (discussed more fully below). Id. at
*24, *26. The district court agreed. 531 B.R. at 332B34. The Senior-Lien
Notes holders argue on appeal that the lower courts erred in concluding that the
Till plurality opinion is wholly applicable to this Chapter 11 proceeding. In
substantial part, we agree.
At issue in Till was a Chapter 13 debtor=s sub-prime auto loan, carrying
an interest rate of 21% and providing the creditor with a $4,000 secured claim.
As with Chapter 11, Chapter 13 allows debtors to provide secured creditors with
future property distributions (such as deferred cash payments) whose total >value,
as of the effective date of the plan, . . . is not less than the allowed amount of
such claim.@ 11 U.S.C. ' 1325(a)(5)(B)(ii). The question became, as here,
how to calculate the interest on the deferred payments such that the creditor
would receive the full value of its claim. No single interest-calculation method
secured a majority vote on the Court, resulting in a plurality opinion endorsing
the Aformula@ method.
The Aformula@ approach endorsed by the Till plurality instructs the
bankruptcy court to begin with a largely risk-free interest rate, specifically, the
Anational prime rate . . . which reflects the financial market=s estimate of the
amount a commercial bank should charge a creditworthy commercial borrower
to compensate for the opportunity costs of the loan, the risk of inflation, and the
relatively slight risk of default.@ 541 U.S. at 479. The bankruptcy court
should then hold a hearing to determine a proper plan-specific risk adjustment to
that prime rate Aat which the debtor and any creditors may present evidence.@
Id. Using this approach, Acourts have generally approved adjustments [above

17

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8

the prime rate] of 1% to 3%.@ Id. at 480.
The Till plurality arrived at the Aformula@ rate after rejecting a number of
alternative methods relied on by the lower courts. Significantly, it rejected
methods relying on purported Amarket@ rates of interest because those rates Amust
be high enough to cover factors, like lenders= transactions costs and overall
profits, that are no longer relevant in the context of court-administered and
court-supervised cramdown loans.@ 541 U.S. at 477. The plurality then
identified the only factors it viewed as relevant in properly ensuring that the sum
of deferred payments equals present value: (i) the time-value of money; (ii)
inflation; and (iii) the risk of non-payment. Id. at 474. The plurality
concluded that the Aformula@ or Aprime-plus@ method best reflects those
considerations.
Although Till involved a Chapter 13 petition, the plurality intimated that
the Aformula@ method might be applicable to rate calculations made pursuant to
other similarly worded Code provisions. In fact, it cited the Chapter 11
cramdown provision, 11 U.S.C. ' 1129(b)(2)(A)(i)(II), among many other
provisions, when it noted that A[w]e think it likely that Congress intended
bankruptcy judges and trustees to follow essentially the same approach when
choosing an appropriate interest rate under any of these [Code] provisions.@ Id.
at 474 & n.10.

Here, the bankruptcy court applied risk adjustments of 2.0% and 2.75%, which it added
to the Treasury rate of 2.1% to arrive at interest rates of 4.1% and 4.85%, respectively.
2014 WL 4436335, at *32. Debtors assert in their briefing that the Treasury rate dropped
by approximately 0.2% between the confirmation date and the plan=s effective date, which
thereby further lowered their notes= interest rate. 15-1682 Br. of Appellee at 11 n.3.

8

18

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Despite that language, however, the plurality made no conclusive
statement as to whether the Aformula@ rate was generally required in Chapter 11
cases. And, notably, the plurality went on to state, in the opinion=s
much-discussed footnote 14, that the approach it felt best applied in the Chapter
13 context may not be suited to Chapter 11. Specifically, in that footnote , the
Court stated that in Chapter 13 cramdowns Athere is no free market of willing
cramdown lenders.@ 541 U.S. at 476 n.14. It continued: A[i]nterestingly, the
same is not true in the Chapter 11 context, as numerous lenders advertise
financing for Chapter 11 debtors in possession. Thus, when picking a
cramdown rate in a Chapter 11 case, it might make sense to ask what rate an
efficient market would produce.@ Id. (internal citations omitted) (emphasis in
9
original).
Many courts have relied on footnote 14 to conclude that efficient market
rates for cramdown loans cannot be ignored in Chapter 11 cases. Most notably,
the Sixth Circuit, Atak[ing] [its] cue from Footnote 14@ of the Till plurality,
adopted a two-part process for selecting an interest rate in Chapter 11
cramdowns:
[T]he market rate should be applied in Chapter 11 cases where
there exists an efficient market. But where no efficient market
exists for a Chapter 11 debtor, then the bankruptcy court should
employ the formula approach endorsed by the Till plurality.

The Supreme Court has not subsequently spoken about the interest-calculation method
to be applied in a Chapter 11 case. Nor have we.

9

19

Case 15-1682, Document 256-1, 10/20/2017, 2152498, Page20 of 30

In re American HomePatient, Inc., 420 F.3d 559, 568 (6th Cir. 2005). In
applying this rule, courts have held that markets for financing are >efficient=
where, for example, Athey offer a loan with a term, size, and collateral
comparable to the forced loan contemplated under the cramdown plan.@ In re
Texas Grand Prairie Hotel Realty, L.L.C., 710 F.3d 324, 337 (5th Cir. 2013). 10
We adopt the Sixth Circuit=s two-step approach, which, in our view, best
aligns with the Code and relevant precedent. We do not read the Till plurality
as stating that efficient market rates are irrelevant in determining value in the
Chapter 11 cramdown context. And, disregarding available efficient market
rates would be a major departure from long-standing precedent dictating that Athe
best way to determine value is exposure to a market.@ Bank of Am. Nat=l Trust
and Sav. Ass=n v. 203 N. LaSalle St. P=ship, 526 U.S. 434, 457 (1999) (assessing
a Chapter 11 cramdown); see also United States v. 50 Acres of Land, 469 U.S.
24, 25 & n.1 (1984) (Afair market value@ is Awhat a willing buyer would pay in
cash to a willing seller@ (internal quotation marks omitted)). In Bank of
America, the Court noted that Aone of the Code=s innovations [was] to narrow the
occasions for courts to make valuation judgments,@ and expressed a Adisfavor for
decisions untested by competitive choice . . . when some form of market
valuation may be available.@ Bank of America, 526 U.S. at 457-58.

Numerous courts, included in this Circuit, have followed the American HomePatient
approach. See, e.g., In re 20 Bayard Views, LLC, 445 B.R. 83, 108-09 (E.D.N.Y. 2011)
(collecting cases and deciding to Afollow the majority approach@ first outlined in American
HomePatient).

10

20

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The Senior-Lien Notes holders presented expert testimony in the
bankruptcy court that, if credited, would have established a market rate. This
evidence showed that if the Senior-Lien Noteholders were to have approved the
Plan and accepted a cash-out payment for their notes, MPM would have had to
secure exit financing to cover the lump-sum payment. In preparation for that
possible eventuality (which did not come to pass in light of the Senior-Lien
Notes holders= rejection of the Plan), MPM went out into the market seeking
lenders to provide that financing. Those lenders quoted MPM rates of interest
ranging between 5 and 6+%. See In re MPM Silicones, LLC, 2014 WL
4436335, at *29.
At these rates, the First-Lien Note holders contend that they would have
received around $150 million more than the Plan offered, Br. of First-Lien
Appellant 25, 33. The 1.5-Lien Note holders claim that the interest rate chosen
by the lower courts led them to receive notes Avalued by the market at less than
93 cents on the value of the secured claims,@ Br. of 1.5-Lien Appellant 20. 11
The Plan was objectionable to the Senior-Lien Notes holders because, in essence,
it required them to lend Debtors a significant sum of money and receive a much
lower rate of interest than any other lender would have received for offering the
same loan to MPM on the open market.
When dealing with a sub-prime loan in the Chapter 13 context, Avalue@
can be elusive because the market is not necessarily efficient and the borrower is
typically unsophisticated. However, where, as here, an efficient market may
exist that generates an interest rate that is apparently acceptable to sophisticated
parties dealing at arms-length, we conclude, consistent with footnote 14, that
such a rate is preferable to a formula improvised by a court. See Bank of
America, 526 U.S. at 457; see also In re Valenti, 105 F.3d at 63 (the goal of the
cramdown rate Ais to put the creditor in the same economic position that it would
The Senior-Lien Notes holders offered evidence that the market price for their notes
dropped, respectively, from 101.375% and 104.000% six days prior to the bankruptcy
court=s oral decision, to 94.375% and 92.563% nine days after that decision. 15-1682 JA
3991 && 5-6, 8-9.
11

21

Case 15-1682, Document 256-1, 10/20/2017, 2152498, Page22 of 30

have been in had it received the value of its allowed claim immediately@); see
also 15-1682 JA 3428 (First-Lien Notes holders= expert testifying that because
the First-Lien Notes holders Aare pricing it at the market . . . they=re being
compensated for the underlying risk that they are taking,@ and not for any
Aimbedded profit@).
We understand that the complexity of the task of determining an
appropriate market rate will vary from case to case. In some cases the task will
be straightforward, in others it will be more complex. But, at the end of the
day, we have no reason to believe the task varies materially in difficulty from the
myriad tasks which we regularly rely on the expertise of our bankruptcy courts to
resolve.
We therefore conclude that the lower courts erred in categorically
dismissing the probative value of market rates of interest. We remand so that
the bankruptcy court can ascertain if an efficient market rate exists and, if so,
12
We arrive at no conclusion with
apply that rate, instead of the formula rate.
regard to the outcome of this inquiry.
C

We acknowledge that the lower courts grappled with the Senior-Lien Notes holders=
evidence regarding MPM=s quoted exit financing, and made express their view that the
rate produced by that process may not in fact have been produced by an efficient market.
2014 WL 4436335, at *26, *29; 531 B.R. at 334 n.9. Nevertheless, Judge Drain left no
ambiguity that he applied the Aformula@ approach for Chapter 13 individual bankruptcy
cases as dictated by the Till plurality and, in so doing, explicitly declined to consider
market forces. See 2014 WL 4436335, at *25-*26; see also id. at * 28 (AI conclude that [the
American HomePatient] two-step method, generally speaking, misinterprets Till@). Judge
Briccetti agreed with this approach. 531 B.R. at 334. As discussed, this was in error.
The bankruptcy court should have the opportunity to engage the American HomePatient
analysis in earnest.
12

22

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The 2012 Indentures governing the Senior-Lien Notes contain Optional
13
Redemption Clauses, which provide for the payment of a make-whole premium
(referred to as the AApplicable Premium@ in the indentures) if MPM were to
14
Aredeem the Notes at its option@ prior to October 15, 2015. 15-1682 JA 2322.
The make-whole premium was intended to ensure that the Senior-Lien Notes
holders received additional compensation to make up for the interest they would
not receive if the Notes were redeemed prior to their maturity date.
In October 2014, the Debtors, pursuant to the Plan, issued replacement
notes to the Senior-Lien Notes holders, which did not account for the
make-whole premium. These holders contended that the failure to include
that premium violated the 2012 Indentures. The bankruptcy court concluded that
the Senior-Lien Notes holders were not entitled to the premium. It reasoned
that under the 2012 Indentures the make-whole premium would be due only in
the case of an Aoptional redemption@ and not in the case of an acceleration
brought about by a bankruptcy filing. 2014 WL 4436335, at *11-*15. The
district court agreed. 531 B.R. at 335-38. We too agree.
The Senior-Lien Notes holders claim entitlement to the make-whole
premium for essentially three reasons: (i) they are entitled to the make-whole
under the 2012 Indentures= Optional Redemption Clauses; (ii) they are entitled to
it under the 2012 Indentures= Acceleration Clauses; and (iii) even if the
indentures did not allow for a make-whole premium upon acceleration, they
should not have been permanently barred from exercising their contractual right
to rescind acceleration and thereby obtain the make-whole premium.
1
A make-whole premium is a Acontractual substitute for interest lost on Notes
redeemed before their expected due date.@ In re Energy Future Holdings Corp., 842 F.3d
247, 251 (3d Cir. 2016) (AEFH@). As stated by the bankruptcy court, its purpose Ais to
ensure that the lender is compensated for being paid earlier than the original maturity of
the loan for the interest it will not receive . . . .@ 2014 WL 4436335, at *15.
13

We cite in this section to the indenture for the First-Lien Notes; the indenture for the
1.5-Lien Notes is identical for relevant purposes.
14

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The Senior-Lien Notes holders= principal argument is that they are
entitled to the make-whole premium because when MPM issued the replacement
notes under the Plan, it Aredeemed@ the Notes Aat its option@ prior to maturity.
This argument fails for the same reasons we rejected nearly identical arguments
in In re AMR Corp., 730 F.3d 88 (2d Cir. 2013). There we rejected the note
holders= argument that they were entitled to a make-whole premium following a
debtor=s bankruptcy filing. We concluded that:
American=s bankruptcy petition triggered a default, and this
default automatically accelerated the debt. That acceleration
changed the date of maturity from some point in the future . . . to
an earlier date based on the debtor=s default under the contract. . .
. When the event of default occurred and the debt accelerated,
the new maturity for the debt was November 29, 2011 [the date
of the bankruptcy petition]. Consequently, American=s attempt
to repay the debt in October 2012 was not a voluntary
prepayment because [p]repayment can only occur prior to the
maturity date.
Id. at 103 (internal citations and quotation marks omitted).
The Senior-Lien Notes holders argue AMR is inapplicable because it
spoke only to Aprepayment@ rather than Aredemption.@ As the district court
noted, the principle of AMR does not turn on the distinction between
Aprepayment@ and Aredemption.@ 531 B.R. at 336-37. In fact, in AMR we
stated that because AAmerican=s debt was accelerated . . . upon its bankruptcy
filing [it] is not now voluntarily redeeming the notes.@ AMR, 730 F.3d at 109.
We also held in AMR that acceleration brought about by a bankruptcy
filing changes the date of maturity of the accelerated notes to the date of the
petition. 730 F.3d at 103. Therefore, any payment on the accelerated notes
following a bankruptcy filing would be a post-maturity payment. And, as the
First-Lien Notes holders concede, the Aplain meaning of the term >redeem= is to
>repay[] . . . a debt security . . . at or before maturity.=@ 15-1682 Br. of First-Lien
Appellant 39 (emphasis added). Here, Debtors= payment was post-maturity, not
24

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Aat or before@ maturity. But see In re Energy Future Holdings Corp., 842 F.3d
247, 255 (3d Cir. 2016). Moreover, even assuming MPM=s issuance of the
replacement notes was a Aredemption,@ it would not have been Aat [MPM=s]
option,@ as required to trigger the Optional Redemption Clauses. Rather, the
obligation to issue the replacement notes came about automatically by operation
of separate indenture provisions, the Automatic Acceleration Clauses. A
payment made mandatory by operation of an automatic acceleration clause is not
one made at MPM=s option. See AMR, 730 F.3d at 100B01.
2
As discussed, the 2012 Indentures each contain an Acceleration Clause,
which calls for the acceleration of payment of the Senior-Lien Notes under
certain conditions constituting an Event of Default. Pursuant to Section
6.01(g), one such event is MPM=s filing of a voluntary bankruptcy petition.
Although most Events of Default allow the Senior-Lien Notes holders the option
of accelerating payment, a default brought about by MPM=s voluntary
15
bankruptcy petition leads to an automatic acceleration under Section 6.02.

Section 6.02 provides: AIf an Event of Default specified in Section 6.01(f) or (g) with
respect to MPM occurs, the principal of, premium, if any, and interest on all the Notes
shall ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holders.@ 15-1682 JA 2260.

15

25

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The Senior-Lien Notes holders argue that the term Apremium, if any@ in
the Acceleration Clauses requires that the make-whole premium is due upon an
automatic acceleration. This argument fails in light of our conclusion that the
Senior-Lien Notes holders are not entitled to the make-whole premium under the
Optional Redemption Clauses. In other words, the make-whole premium is not
due pursuant to the Acceleration Clauses= reference to Apremium, if any,@ for the
simple reason that the more specific Optional Redemption Clauses which grant
the make-whole are not triggered and thus no premium has been generated. See
Aramony v. United Way of Am., 254 F.3d 403, 413 (2d Cir. 2001) (noting that
Ait is a fundamental rule of contract construction that specific terms and exact
terms are given greater weight than general language@ (internal quotation marks
omitted)).
3
Finally, the Senior-Lien Notes holders argue that the lower courts erred in
disregarding their contractual right to rescind acceleration, 16 a right that if
invoked would have reinstated the original maturity date and thereby kept the
Optional Redemption Clauses (and therefore the make-whole premium) in effect.
AMR forecloses this argument as well. There, considering nearly
identical indenture language, we concluded that a creditor=s post-petition
invocation of a contractual right to rescind an acceleration triggered
automatically by a bankruptcy filing is barred because it would be Aan attempt to
modify contract rights and would therefore be subject to the automatic stay.@
730 F.3d at 102; see also id. at 102-03 (Aany attempt by U.S. Bank to rescind
acceleration nowCafter the automatic stay has taken effectCis an effort to affect
American=s contract rights, and thus the property of the estate@).

16

AHolders of a majority in principal amount of outstanding Notes by notice to the Trustee may
rescind any such acceleration with respect to the Notes and its consequences.@ 15-1682 JA 2260.

26

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The Senior-Lien Notes holders again attempt to distinguish AMR by
relying on the fact that the acceleration provision there, unlike the one here,
expressly disavowed the make-whole premium. According to the 1.5-Lien
Notes holders, our concern in AMR was therefore with not allowing the creditors
Aan end-run around their bargain by rescission.@ 15-1682 Br. of 1.5-Lien
Appellant 45. This argument fails because, although the provisions at issue
here do not expressly disallow the make-whole premium, the Optional
Redemption Clauses, as we have seen, achieve this result. Therefore, just as in
AMR, because the right to rescind acceleration here would serve as Aan end-run
around their bargain by rescission,@ the lower courts correctly concluded that the
automatic stay barred rescission of the acceleration of the Notes.
V
Debtors seek dismissal of these appeals under the principle of equitable
mootness, a Aprudential doctrine that is invoked to avoid disturbing a
reorganization plan once implemented.@ In re Metromedia Fiber Network, Inc.,
17
The doctrine Aallows appellate courts to
416 F.3d 136, 144 (2d Cir. 2005).
dismiss bankruptcy appeals >when, during
the pendency of an appeal, events occur= such that >even though effective relief
could conceivably be fashioned, implementation of that relief would be
inequitable.=@ In re Motors Liquidation Co., 829 F.3d 135, 167 (2d Cir. 2016)
(quoting In re Chateaugay Corp., 988 F.2d 322, 325 (2d Cir. 1993) (AChateaugay
II@)). The doctrine requires us to Acarefully balance the importance of finality
in bankruptcy proceedings against the appellant=s right to review and relief.@ In
re Charter Commc=ns. Inc., 691 F.3d 476, 481 (2d Cir. 2012). With these
principles in mind, we decline to dismiss any of these appeals as equitably moot.
Debtors filed with the district court a motion to dismiss the appeal of the bankruptcy
court=s confirmation order on the basis of equitable mootness. 15-1771 JA 4570-88. The
district court made no ruling on the motion, concluding it was Amooted by this Court=s
decision to affirm the Orders of the Bankruptcy Court.@ 531 B.R. at 338 n.14. Debtors
then filed motions to dismiss on equitable mootness grounds with this Court, 15-1682
Doc. 58; 15-1771 Doc. 62 , which we summarily denied without prejudice to Debtors
Arais[ing] the issue . . . in their merits brief,@ 15-1682 Doc. 159; 15-1771 Doc. 102.
17

27

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Where, as here, a reorganization plan has been substantially
consummated, we presume that an appeal of that plan is equitably moot. In re
BGI, Inc., 772 F.3d 102, 104 (2d Cir. 2014). That presumption, however, gives
way where five factors first identified in Chateaugay II are met. They are,
where: (i) effective relief can be ordered; (ii) relief will not affect the debtor=s
re-emergence; (iii) relief Awill not unravel intricate transactions@; (iv) affected
third-parties are notified and able to participate in the appeal; and (v) appellant
diligently sought a stay of the reorganization plan. In re Charter, 691 F.3d at
482.
Although we require satisfaction of each Chateaugay II factor to
overcome a mootness presumption, we have placed significant reliance on the
fifth factor, concluding that a Achief consideration under Chateaugay II is
whether the appellant sought a stay of confirmation.@ In re Metromedia, 416
F.3d at 144. Along these lines, we concluded that A[i]f a stay was sought, we
will provide relief if it is at all feasible, that is, unless relief would >knock the
props out from under the authorization for every transaction that has taken place
and create an unmanageable, uncontrollable situation for the Bankruptcy Court.=@
Id. (quoting Chateaugay II, 10 F.3d at 953).
A special emphasis on this factor is sound. Equitable mootness issues
only arise in earnest following a judicial determination that some facet of a
reorganization plan violates the Code.
It is generally considered
inappropriately harsh to deny relief to which one is entitled on the purportedly
equitable ground that the unfair (or illegal) plan has been put into effect,
especially where a creditor took all appropriate steps to secure judicial relief.
In such a case, we have held that it is proper to Aprovide relief if it is at all
feasible.@ Id.
Here, the appellants immediately objected to various provisions of the
Plan and promptly and consistently sought a stay in three different courts. Thus
their diligence is not in question. Debtors nevertheless argue that these appeals
should be dismissed as moot because of the cascading effects of rewriting the
plan were the appellants to prevail. Specifically, they argue that Agranting the
28

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Noteholders= relief would alter a critical piece of the Plan resulting from the
intense-multi-party negotiation, thereby impact[ing] other terms of the agreement
and throw[ing] into doubt the viability of the Plan,@ and that according such
relief Awould cause debilitating financial uncertainty@ to the emergent Debtor.
15-1682 Br. of Appellees 69, 71 (internal quotation marks omitted).
In light of the limited nature of the remand we order, we do not believe
these concerns will materialize. On remand, the bankruptcy court will only be
called on to re-evaluate the interest to be received on the replacement notes held
by the Senior-Lien Notes holders. The Debtors acknowledge that this might
require, at most, $32 million of additional annual payments over seven years.
15-1682 Br. of Appellees 69. The Debtors will not have to pay out the nearly
$200 million they assert would be required to pay the Senior-Lien Notes holders=
make-whole premium, nor will any redistribution be required to the
Subordinated Notes holders, as to which the plan is fair. In fact, our judgment
allows for no redistribution other than that from the Debtors to the Senior-Lien
Notes holders.
Given the scale of Debtors= reorganization, we are not persuaded that a
payment of, perhaps, $32 million in annual payments over seven years, with no
other redistribution from other creditors or third parties, would unravel the plan,
threaten Debtors= emergence, or otherwise materially implicate the concerns
identified in Chateaugay II.
Our conclusion is supported by the findings of the lower courts, which
had intimate familiarity with the Debtors= financial condition and the transactions
that will arise from the reorganization. Although it made no determinative
ruling as to equitable mootness, the bankruptcy court opined that Athe risk of
equitable mootness is not strong here for either set of movants . . . the senior
secured lender set of movants and the senior subordinated noteholder movants.@
15-1682 JA 4165 (emphasis added). The district court agreed. 15-1682 JA
4837 (AI agree with Judge Drain that the risk of equitable mootness here is not
very great . . .@). Debtors= request that we dismiss these appeals as equitably
moot is denied.
29

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VI
To summarize, we conclude as follows:
1.
2.
3.

4.

The Second-Lien Notes stand in priority to the Subordinated Notes.
The Senior-Lien Notes holders are not entitled to the make-whole
premium.
The lower court erred in the process it used to calculate the interest rate
applicable to the replacement notes received by the Senior-Lien Notes
holders. On remand, the bankruptcy court should assess whether an
efficient market rate can be ascertained, and, if so, apply it to the
replacement notes.
We decline to dismiss any of these appeals as equitably moot.

For the foregoing reasons, we AFFIRM the District Court=s order in part, with
respect to the priority of the Subordinated Notes and the Senior-Lien Notes holders=
entitlement to a make-whole premium; REVERSE the order in part, with respect to
the method of calculating the interest rate on the Senior-Lien Notes holders=
replacement notes; and REMAND the matter for further proceedings consistent
with this opinion.

30