- Prudential Ins. Co. v. City of Boston (In re SW Boston Hotel Venture, LLC), BAP NOS. MB 11-079, MB 11-082, MB 11-085, MB 11-086; Bankr. Case No. 10-14535-JNF (B.A.P. 1st Cir. Oct. 1, 2012)
- In a dispute between a developer-debtor and its primary secured lender, the BAP AFFIRMED the bankruptcy court's decision to calculate postpetition interest (506(b)) owing to the lender at the contractual default rate. The BAP also REVERSED the lower court's ruling as to when the postpetition interest began accruing, finding that the lender had been over secured since the petition date and so that was when the lender became entitled to interest payments under 506(b).
- Procedural context:
- Prudential Insurance Company of America appeals from the following orders of the bankruptcy court: (1) the October 4, 2011 order granting, in part, and denying, in part, the Motion of The Prudential Insurance Company of America for an Order Authorizing the Application of Payments Received during the Chapter 11 Cases to Payment of Postpetition Interest Pursuant to Section 506(b) of the Bankruptcy Code; and (2) the Order Fixing Amount of Allowed Prudential Secured Claim as of October 4, 2011 entered by the bankruptcy court on October 20, 2011. The Debtors filed cross-appeals with respect to both orders, arguing that the bankruptcy court erred by awarding Prudential interest at the default rate.
- Before filing for bankruptcy the Debtor had taken out a secured loan with Prudential to build the "W" Hotel & Residences in downtown Boston. After the Debtor's bankruptcy filing, and in connection with it's objection to the Debtor's plan of reorganization, Prudential sought a declaration that it was oversecured and therefore entitled under § 506(b) to recover postpetition interest from the petition date at the default rate set forth in loan documents. The Debtor countered by asserting that Prudential’s claim was undersecured at the petion date and did not become oversecured until sometime later in the case; as such, the Debtor argued, Prudential was only entitled to postpetition interest from the later date, not the petition date. The Debtors also asserted that the default rate of interest should not be allowed as it was an unreasonable penalty and would be inequitable under the circumstances.
- Haines, Deasy, and Tester, United States Bankruptcy Appellate Panel Judges
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Summarizing by Bradley Pearce
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3495 in the system
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