Whether hypothetical post-petition interest accruals are considered when calculating distributions among undersecured creditors with liens on the same collateral is an issue finally ready for appeal in Delaware.
The outcome of the appeal in Energy Future Holding Corp. will determine whether New York and Delaware agree or disagree on an issue that controls how much equally ranked secured creditors receive.
Bankruptcy Judge Christopher S. Sontchi of Delaware ruled on the issue in March 2016 when he decided that post-petition interest accruals on undersecured claims would not be considered in calculating distributions under the Energy Future plan that he confirmed. Lienholders with the higher interest rate appealed the decision, because they would recover more if hypothetical post-petition interest accruals were added to the claims.
However, the first plan was never consummated. After Energy Future confirmed and consummated a second plan, the district court remanded the appeal to Judge Sontchi to reconsider whether the revised plan changed the outcome.
In his April 27 opinion, Judge Sontchi said that the differences between the two plans were “minimal at best” and that the lienholders with the higher interest rate “asserted virtually identical arguments” the second time around.
Consequently, Judge Sontchi reached the same conclusion and adopted the findings from his opinion last year “in toto.” Among other things, he concluded last year that property distributed under the plan was not collateral on which the creditors held liens, making the intercreditor agreement inapplicable.
With the decision last week, the issue is now ripe for appeal to decide whether Delaware will reach the same conclusion as Bankruptcy Judge Robert Drain of New York in the reorganization of MPM Silicones LLC, also known as Momentive Performance.
Rather than restate Judge Sontchi’s analysis, we refer you to ABI’s discussion of the decision last year, which can be found here.
The opinion last year was Delaware Trust Co. v. Wilmington Trust Co. (In re Energy Future Holdings Corp.), 546 B.R. 566 (Bankr. D. Del. March 11, 2016).