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Second Circuit Directs Consideration of an 'Efficient Market' Interest Rate for <b><i>Momentive</i></b> Cramdown Plan
On Oct. 20, 2017, the U.S. Court of Appeals for the Second Circuit, in Momentive Performance Materials, Inc. v. BOKF, NA (In re MPM Silicones, L.L.C. “MPM”) –F.3d–, 2017 WL 4700314, Nos. 15-1682 (2nd Cir. Oct.20, 2017), reversed in part and remanded to the bankruptcy court an order confirming the Debtor's Chapter 11 plan of reorganization. The appellate court instructed the bankruptcy court to apply an “efficient market rate” of interest to the senior secured notes issued under the plan, if such a rate could be ascertained, in lieu of a “formula rate” of interest that had been applied. The Second Circuit affirmed the balance of judgment on appeal by denying any make-whole recovery, refusing to subordinate claims of certain second lien creditors and finding that the doctrine of equitable mootness did not apply.
Background
In 2006, MPM issued $500 million in subordinated unsecured notes (the “Subordinated Notes”). In 2009, MPM issued secured second-lien notes and offered the holders of Subordinated Notes the option of exchanging their notes for newly issued discounted secured second-lien notes. A portion of the Subordinated Notes was ultimately exchanged.
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