Wells Fargo Bank National Association v. Texas Grand Prairie Hotel Realty, L.L.C. (In re Texas Grand Prairie Hotel Realty, L.L.C.)
- Citation:
- Wells Fargo Bank, NA v. Texas Grand Prairie Hotel Realty, L.L.C. (In re Texas Grand Prairie Hotel Realty, L.L.C.), Case No. 11-11109 (5th Cir. Mar. 1, 2013)
- Tag(s):
-
- Ruling:
- Affirmed confirmation of Chapter 11 cramdown plan and the Debtors' Till-based prime-plus formula for cramdown interest rate over secured lender's objection that a market-based adjustment to prime should be used. The Court also rejected the Debtors' equitable-mootness argument and Wells Fargo's Daubert-based challege to the Debtors' interest-rate expert.
- Procedural context:
- Appeal from the district court decision affirming the bankruptcy court's confirmation of a Chapter 11 cramdown plan.
- Facts:
- The Debtors obtained a $49MM loan to acquire and renovate four hotels. Two years later, the Debtors were unable to make loan payments as due and filed for Chapter 11. The Debtors valued the hotel collateral at roughly $39MM, in accordance with secured creditor Wells Fargo's own appraisal. Wells Fargo and the Debtors stipulated that the Till plurality's formula approach govered the applicable cramdown rate for Wells Fargo's secured claim. The Debtors' plan and expert proposed an interest rate of 5% -- 1.75% over the prime rate -- by looking at situation presented and the Till comment that risk adjustments generally fall between 1% and 3%. Wells Fargo argued that the prime rate should be adjusted based on how the market would fund a $39MM loan to the Debtors. Well Fargo's expert testified that the market would fund the loan by combining a first-mortgage loan for $23.5MM at 6.25%, a mezzanine loan at 11%, and equity at a constructive rate of 22%; he made Till-based adjustments from the blended rate to arrive at a cramdown rate of 8.8%. The Fifth Circuit determined that the rate proffered by Wells Fargo required a bankruptcy court to consider evidence about the market rate for loans, which is an inquiry contrary to Till's prime-plus method that the parties stipulated would apply. The court acknowledged that no willing lender would consider funding a $39MM loan at the approved cramdown rate of 5%; it stated that the prime-plus method "sacrifices market realities in favor of simple and feasible bankruptcy reorganizations." The Fifth Circuit indicated some skepticism about the viaibily of an "efficient markets" model for cramdown financing, but stated that its decision does not suggest that the prime-plus formula is the only -- or even the optimal -- method for calculaing the Chapter 11 cramdown rate in all cases.
- Judge(s):
- Higginbotham, Elrod, Haynes
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