Single Asset Real Estate Cramdown: Analyzing Impaired Accepting Class and Per-Plan vs. Per-Debtor Under Sec. 1129

Description

Approval of a cramdown plan by a single asset real estate entity requires that at least one class of “impaired” creditors vote to accept the plan. Practitioners representing clients in SARE bankruptcies must navigate the impaired creditor rules and keep abreast of the evolving case law developments impacting plan cramdown.

A recent Arizona district court’s interpretation of “impaired accepting class” jeopardizes senior lender protections in single-asset entity reorganization plans. Noting the split in authority between New York and Delaware Bankruptcy courts on whether Section 1129(a)(10) applies on a per plan or a per debtor basis, the Arizona court applied the per plan approach.

A recent Sixth Circuit case made it more difficult for SARE debtors to cramdown a plan on the secured lenders. While the court allowed the plan to “artificially impair” claims of unsecured creditors, it then found the plan was not proposed in good faith.

The Ninth Circuit ruled that an insider can sell its claim to a friendly third-party creditor who can then fulfill Section 1129(a)(10)’s requirement of an impaired consenting class so long as the third party does not have a close relationship with the debtor and the purchase of the claim was negotiated at arm’s length.

Listen as our authoritative panel of bankruptcy attorneys guides you through the morass of complexities facing debtors and senior mortgage lenders in plan cramdown involving SAREs. The panel will focus on the court interpretation of impaired accepting class and the per-plan vs. per-debtor approaches under Sec. 1129.