Ultra Petroleum Corporation, et al v. Ad Hoc Commi

Fifth Circuit upholds its prior ruling that disallowing part of a claim under the Bankruptcy Code does not render the claim ‘impaired’ to allow voting on a chapter 11 plan.

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Case Type:
Case Status:
Reversed and Remanded
No. 17-20793 (5th Circuit, Nov 26,2019) Published
On direct appeal, 5th Cir. reversed and remanded bankruptcy court (SD Tx.) ruling that class of noteholders were impaired by solvent debtor's chapter 11 plan that provided creditors with full amount allowable under Bankruptcy Code, based on creditors' entitlement to higher amount under state law. Fifth Circuit ruled Bankruptcy Code's disallowance provisions did not impair creditors. Fifth Circuit remanded with directions for bankruptcy court to determine if Bankruptcy Code disallowed make-whole amounts, contract rate of default interest, and any equitable solvency exception.
Procedural context:
Solvent chapter 11 debtor and class of creditors stipulated to resolve plan objection post-confirmation regarding the proper amount of the class's "unimpaired" claim, with debtor reserving funds for potential increased payment regarding disputed amount. Bankruptcy court (SD Tx.) denied debtor's argument that plan adequately provided for amount allowable under Bankruptcy Code, finding plan needed to provide for full amount allowable under state law. Debtor requested direct appeal to 5th Cir., which bankruptcy court granted, and 5th Cir. accepted.
Prior to filing chapter 11 in 2016, Ultra funded operations in part through $2.46 billion in unsecured notes (collectively "Class 4 Creditors"). Notes provided that prepayment triggered a "Make-Whole" provision designed to compensate holders' right to maintain its investment in the notes free from prepayment. A formula in notes defined the "Make-Whole Amount" based on the discounted value of the remaining scheduled payments that included interest if there was no prepayment, and comparison to comparable US Treasury obligations. Ultra was insolvent at the time of filing, but became solvent postpetition after oil prices rose. Ultra proposed a "full payment" plan and designated Class 4 Creditors as unimpaired, and thus not entitled to vote or object to the plan. Ultra proposed to pay Class 4 Creditors (a) outstanding principal; (b) prepetition interest at rate of 0.1%; and (c) postpetition interest at federal judgment rate. Class 4 Creditors objected to designation as unimpaired, asserting they were entitled to contractual Make-Whole Amount and additional post-petition interest at contractual default rates. Class 4 Creditors argued Ultra owed an additional $387 million--$201 million as the Make-Whole Amount and $186 million in postpetition interest. Debtor and Class 4 Creditors stipulated to resolve plan objection post-confirmation, with Ultra segregating $400 million for payment in the event Class 4 Creditors' argument prevailed.
Davis, Engelhardt, Oldham

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