Page 119 - Bankruptcy and Reorganization Services

As a practical matter very little can be done to reconcile these differences for fresh-start reporting pur-
poses. Under FASB ASC 852, the reorganization value is presumed to be the fair value of the entity up-
on emergence. In practice, any potential difference in values is assumed to be small. In some cases
where the reorganization value is presented as a range of values in the disclosure statement, it may be
possible to use the low end of the range of value for fresh-start reporting purposes. However, if the ana-
lyst believes that there may have been a decline in the value of the entity between the date of the reor-
ganization value and the plan confirmation date, it may be necessary to perform an impairment test of
any existing goodwill and finite-lived intangible assets under FASB ASC 350 immediately after the con-
firmation date. The impairment, however, should not be reflected on the opening balance sheet upon
emergence.

Market Rate of Interest in "Cram Downs"

A plan of reorganization may be confirmed even though a class of claims or interests does not accept the
plan, as long as at least one impaired class of claims or interests has accepted the plan. The provision in
the Bankruptcy Code that enables confirmation under this scenario is referred to as the "cram down"
provision (see 11 USC 1129(b)).

In order to cram down a plan on a secured creditor, one of the following conditions must be met:

 The holder of the claim retains the lien(s) securing the claim. In addition, the holder of the claim
receives deferred cash payments that (1) total at least the allowed amount of the claim and (2) are
of a value equal to or greater than the value of the collateral as of the effective date of the plan.

 The holder’s lien(s) securing the claim attach(es) to the proceeds generated from the sale of the
collateral.

 The holder of the claim realizes the indubitable equivalent of such claim.

Only the first item in the preceding list applies to the analysis of the market rate of interest. Specifically,
the valuation analyst must determine an appropriate rate to apply when calculating the present value of
the deferred cash payments in assessing whether the present value of those payments is greater than or
equal to the value of the collateral as of the effective date of the plan.

In re Till (the Till matter) provides a useful framework for considering various approaches for determin-
ing a market rate of interest in the context of a cram down. fn 17 The questions raised in the Till matter
were ultimately determined by the U.S. Supreme Court (the Till opinion). fn 18 Although the Till matter
involved a proceeding filed under Chapter 13 of the U.S. Bankruptcy Code, courts throughout the U.S.
have applied the framework in the Till opinion to Chapter 11 cases.

The Till opinion discusses four approaches for determining a market rate of interest in the context of a
cram down. The lower courts collectively considered each of these four approaches. fn 19 The four ap-

fn 17 In re Till, 301 F.3d 583, 2002 U.S. App. LEXIS 17274 (7th Cir. Ind., 2002).

fn 18 Till v. SCS Credit Corp., 541 U.S. 465 (2004).

fn 19 In re Till, 301 F.3d 583, 591.

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