## Facts

- T-H New Orleans Limited Partnership owned and operated a Days Inn hotel in New Orleans.
- In 1989, T-H New Orleans and affiliated hotel partnerships refinanced through cross-collateralized, cross-guaranteed mortgage bond financing secured by the hotels and their revenues.
- Financial Security Assurance Inc. guaranteed the bond financing and held a secured claim supported by a security interest in the hotel and its revenues.
- After default and a Chapter 11 filing, the Fifth Circuit previously held the hotel’s postpetition revenues were “rents” under Louisiana law and subject to the creditor’s lien, requiring segregation.
- On remand, the bankruptcy court set the hotel’s value at roughly $13.7 million at a relevant point and credited adequate-protection payments from segregated revenues that reduced the creditor’s allowed claim (approximately $18.5 million reduced to about $13.75 million).
- Disputes continued over (i) when the creditor became oversecured, (ii) entitlement to postpetition, preconfirmation interest, (iii) collateral valuation, (iv) the plan’s interest rate to provide present value, and (v) confirmation of the Chapter 11 plan.

## Issues

1. Whether an undersecured creditor that later becomes oversecured by confirmation is entitled under 11 U.S.C. § 506(b) to postpetition, preconfirmation interest from the petition date.
2. Whether the bankruptcy court clearly erred in valuing the hotel collateral and in determining oversecurity timing.
3. Whether the bankruptcy court selected a proper cramdown interest rate to provide the present value of the allowed secured claim.
4. Whether confirmation of the Chapter 11 plan over the secured creditor’s objections was erroneous under the Bankruptcy Code.

## Decision

- The Fifth Circuit affirmed the bankruptcy court’s rulings and the confirmation order, finding no reversible error.
- The court upheld denial of § 506(b) interest for periods when the creditor was undersecured, permitting interest only once the creditor was actually oversecured.
- The court upheld the bankruptcy court’s collateral valuation as not clearly erroneous.
- The court upheld the plan’s confirmation interest rate as sufficient to provide present value.
- The court upheld confirmation of the plan as satisfying the Bankruptcy Code’s requirements despite the creditor’s objections.

## Legal Principles

- Under 11 U.S.C. § 506(b), postpetition interest is allowed only to the extent a creditor is oversecured; later oversecurity at confirmation does not create retroactive interest entitlement for earlier undersecured periods.
- Valuation of bankruptcy collateral and related determinations of secured status are fact-driven findings reviewed under a clearly erroneous standard.
- The cramdown interest rate used to provide present value of a secured claim is a case-specific determination that may rely on market and risk evidence and is reviewed deferentially.
- Plan confirmation decisions, including treatment of secured claims consistent with Bankruptcy Code requirements, are reviewed with substantial deference to the bankruptcy court’s factual findings and discretionary judgments.

## Conclusion

The Fifth Circuit affirmed confirmation of the debtor’s Chapter 11 plan and upheld the bankruptcy court’s valuation and interest-rate determinations, holding that § 506(b) postpetition interest is limited to periods of actual oversecurity rather than awarded from the petition date based solely on oversecurity at confirmation.


Fin. Sec. Assurance, Inc. v. T-H New Orleans Ltd. P’ship, 116 F.3d 790 (5th Cir. 1997)