Momentive Performance Materials Inc. v. BOKF, NA (In the Matter of: MPM Silicones, L.L.C.)
Momentive Performance Materials Inc. v. BOKF, NA (In the Matter of: MPM Silicones, L.L.C.), – F.3d –, 2017 WL 4700314, No. 15-1682, (2d Cir. Oct. 20, 2017): US Court of Appeals for the Second Circuit recently issued its long-awaited opinion stemming from the confirmed Chapter 11 plan of Momentive Performance Materials Inc.
The court reversed the lower courts’ controversial holding that senior secured lenders receiving replacement secured notes under the debtors’ plan were only entitled to interest at the “formula” rate – determined by using the risk-free rate plus a plan-specific risk adjustment. Instead, the Second Circuit remanded the case to the bankruptcy court with instructions to determine whether an efficient market rate exists, and if so, to apply that “market” rate to the replacement notes, and to use the “formula” rate only in the event there is no efficient “market” rate. The Second Circuit’s ruling is an important victory for secured lenders, who now will not have to risk being saddled with new debt instruments bearing below-market interest rates in a “cramdown” Chapter 11 plan scenario.