The courts are split about the date for valuing collateral when the chapter 11 debtor is cramming down a secured lender.
Taking sides with the majority, Bankruptcy Judge Robert H. Jacobvitz of Albuquerque, N.M., selected “a date close to the confirmation hearing” as the date for valuing a lender’s collateral.
In the case before Judge Jacobvitz, the chapter 11 debtor had proposed a plan under Subchapter V where the debtor would retain and use the lender’s collateral. Confirmation would likely require cramming the plan down on the lender, whose secured claim was in a class of its own.
In his December 9 opinion, Judge Jacobvitz confronted the following question: For the purpose of confirmation, should the collateral be valued as of the filing date, the confirmation date, or some other time?
The Bankruptcy Code has no precise answer. Judge Jacobvitz cited Sections 506(a)(1) and 1129(b)(2)(A)(i)(II) for providing some guidance.
Sections 506(a)(1) says that the “value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property.” In a cramdown on a secured creditor, Judge Jacobvitz described Section 1129(b)(2)(A)(i)(II) as requiring “payments totaling at least the allowed amount of the secured claim and . . . deferred cash payments [with] a present value at least equal to the value of the creditor’s interest in the collateral.”
Dealing with the two sections, the Fifth Circuit held that the court is not compelled to use either the filing date or the plan’s effective date as the time for valuing the collateral, when a secured creditor makes the election under Section 1111(b) to have its claim treated as secured under a plan.
The Fifth Circuit said that courts “have the flexibility to select the valuation date so long as the bankruptcy court takes into account the purpose of the valuation and the proposed use or disposition of the collateral at issue.” Houston Sportsnet Finance LLC v. Houston Astros LLC (In re Houston Regional Sports Network LP), 886 F.3d 523, 528 (5th Cir. 2018). To read ABI’s report, click here.
Referring to lower courts that have settled on a date for valuation, Judge Jacobvitz said that the “large majority” look to Section 506(a)(1) and land on a date “as of or near the date of the confirmation hearing.” A “few courts,” he said, use the filing date.
Among the minority, Judge Jacobvitz cited an opinion by Miami Bankruptcy Judge A. Jay Cristol, who said that “an allowed secured claim is determined ‘as of the filing of the petition,’ just like any other claim.” In re Flagler-At-First Assocs. Ltd., 101 B.R. 372, 376 (Bankr. S.D. Fla. 1989).
For the majority, Judge Jacobvitz cited an opinion by Chief Bankruptcy Judge Bruce A. Harwood, whom he paraphrased as saying that “a per se ruling requiring valuation as of the petition date does not adequately take into account the last sentence of § 506(a)(1).” In re Cahill, 503 B.R. 535, 541 (Bankr. D.N.H. 2013).
Judge Harwood went on to say that using the filing date “conflates” the amount of the claim and the value of the collateral. Id.
Again paraphrasing Judge Harwood, Judge Jacobvitz said that the “amount of the allowed claim determined under § 502(b) is fixed as of the petition date, whereas the value of the collateral securing the claim determined under § 506(a) can vary over the life of the case depending on the purpose of the valuation and the proposed use or disposition of the collateral.” Id.
Judge Jacobvitz decided that the majority rule was “persuasive.” Using confirmation, he said, “is consistent with the last sentence of § 506(a)(1) because it accounts for the purpose of the valuation.” He added that it “also accommodates the practical prospect of holding the valuation hearing in conjunction with the confirmation hearing.”
Although Judge Jacobvitz ruled in the case before him that confirmation was the appropriate date, he adopted some of the approach of the Fifth Circuit by saying he would “not rule out the possibility that a different date might be appropriate in unusual circumstances based on developments during the bankruptcy case.”
The courts are split about the date for valuing collateral when the chapter 11 debtor is cramming down a secured lender.
Taking sides with the majority, Bankruptcy Judge Robert H. Jacobvitz of Albuquerque, N.M., selected “a date close to the confirmation hearing” as the date for valuing a lender’s collateral.
In the case before Judge Jacobvitz, the chapter 11 debtor had proposed a plan under Subchapter V where the debtor would retain and use the lender’s collateral. Confirmation would likely require cramming the plan down on the lender, whose secured claim was in a class of its own.
In his December 9 opinion, Judge Jacobvitz confronted the following question: For the purpose of confirmation, should the collateral be valued as of the filing date, the confirmation date, or some other time?
The Bankruptcy Code has no precise answer. Judge Jacobvitz cited Sections 506(a)(1) and 1129(b)(2)(A)(i)(II) for providing some guidance.