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Opinion 107

Case Name: 

In re Loveridge Mach. & Tool Co., Inc., 36 B.R. 159 (Bankr.D.Utah)

Judge: 
Judge Clark
Date: 
Dec-13-1983
Case Number(s): 
83C-0071, -0238, -0312, -0313, and -0315
Status: 

PUBLISHED

Body: 

Chapter 11 debtors sought confirmation of their plan, which proposed applying the statutory interest rate provided by 28 U.S.C. § 1961(a) (which was 8.75% when the petition was filed) on deferred cash payments to oversecured creditor, rather than the parties' contract rate of 19%. Creditor objected. The court held that, under 11 U.S.C. § 506(b), the contract rate applies when there is a contract, from the petition filing date to the effective date of debtors' plan. Therefore, creditor was entitled to 19% annual interest on its claim during that period. With respect to post-effective date interest, the court found that the statutory rate, which changes on a monthly basis, would be impossible to determine, especially since the "effective date" of an as-yet unconfirmed plan is also uncertain. The court concluded that use of the statutory rate to determine present value under 11 U.S.C. § 1129(b)(2)(A)(i)(2) "would be ill advised and erroneous as a matter of law" since, although the statutory rate may be helpful in determining a risk-free interest rate for a one-year loan, a chapter 11 plan is neither risk-free nor limited to a period of one year. Interest rates that satisfy § 1129(b) should compensate for risks imposed on secured creditors by the plan. Since debtors' proposed interest rate did not do so, the plan would not be confirmed over creditor's objection. The court refused to determine an appropriate post-effective date interest rate, concluding that such a determination would be dictum.

Internal Ref: 
Opinion 107
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