Houston Sportsnet Finance, L.L.C. v. Houston Astros, L.L.C (In the Matter of Houston Regional Sports Network, L.P.)

Fifth Circuit refuses to adopt chapter 13 valuation timing to chapter 11 cramdowns.

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Case Type:
Case Status:
Reversed and Remanded
15-20497 (5th Circuit, Mar 29,2018) Published
For a Section 506 valuation of collateral in connection with a Chapter 11 cram-down plan, a bankruptcy court has the flexibility to select a valuation date--the petition date, the confirmation date, or another date--so long as it takes into account the purpose of the valuation and the proposed use or disposition of the collateral. If the debtor retains the collateral, value in actual use is more relevant than a hypothetical sale that will not occur. In this case, the bankruptcy court erred by deducting from value unpaid fees owed to creditors who waived those fees in the confirmed plan.
Procedural context:
The bankruptcy court confirmed a chapter 11 plan that valued the secured creditor's intangible collateral at $0. The creditor appealed the bankruptcy court's valuation to the district court and sought a stay of implementation of the plan pending appeal. The district court denied the stay and affirmed the bankruptcy court's valuation. The creditor appealed to the Fifth Circuit.
The Houston Rockets and Houston Astros ("Teams") formed the Debtor to televise their games in exchange for fees owed pursuant to media-rights agreements between the Debtor and the Teams. The Debtor defaulted on fees owed to the Astros. Comcast entities filed an involuntary bankruptcy petition against the Debtor before the Astros could terminate its media-rights agreement. The Debtor ultimately confirmed a chapter 11 plan that included a sale of the Debtor's equity to AT&T and DirecTV and the Teams waiving their rights to approximately $107MM in media-rights fees that accrued during the case. A Comcast affiliate with a lien on substantially all of the Debtor's assets elected to have its claim treated as fully secured under 11 USC 1111(b). At confirmation, the bankruptcy court valued the creditor's intangible collateral as of the petition date, and determined it had a value of $54.3MM, but subtracted the waived media-rights fees owed to the Teams from that valuation, which reduced the value to less than $0. The creditor was unable to elect to have its claim treated as fully secured on collateral of "inconsequential value" under Section 1111(b).
Owen, Wiener, and Prado

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