Fifth Circuit Follows Ninth Circuit, Allows Post-Bankruptcy Contract Rate Interest In Solvent Debtor Case

Relevance

"No circuit court [had] addressed the issue [i.e. rate of post-petition interest to unimpaired unsecured creditors], and bankruptcy courts have reached different conclusions in the rare solvent debtor case," noted the Ninth Circuit on August 29, 2002, in the PG&E case, 46 F. 4th at 1052, a decision not mentioned by the Fifth Circuit in Ultra. And "this is not the ordinary case," said the Fifth Circuit. 22 WL 8025329, at *8. Some lower courts, for example, had held that post-petition interest should be calculated at the lower federal judgment rate, not the contractual default rate. In re the Hertz Corp, 647 B.R. 781, 800-01 (Bankr. D. Del. 2021). See, also, In re Energy Future Holdings Corp., 540 B.R. 109, 124 (Bankr. D. Del. 2015) (interest based on "equitable principles" at rate court "deems appropriate.")

Facts

The affiliated debtors in Ultra (collectively, Ultra) were insolvent when they commenced their Chapter 11 cases but "became supremely solvent" during bankruptcy. Id. at *1. "Ultra proposed a $2.5 billion [reorganization] plan" providing full cash payment to creditors plus pre-bankruptcy interest at the Federal Judgment Rate "for the duration of the bankruptcy [case]." But two groups of creditors claimed not only a "Make-Whole Amount," a lump sum "calculated to give them the present value of the interest … they would have received but for Ultra's bankruptcy," but also "post-petition interest" at the contractual default rate.