## Facts

- MPM Silicones, L.L.C. and affiliates (Momentive) filed for chapter 11 after financing operations with roughly $2.85 billion of debt, including senior secured notes (first-lien and 1.5-lien) and subordinated notes.
- The senior secured note indentures provided a make-whole premium for an “optional redemption” before a specified date and also contained an automatic acceleration clause upon a bankruptcy filing for “principal, interest and premium, if any.”
- The confirmed plan offered senior secured noteholders either (a) immediate cash payment of principal and interest without a make-whole, or (b) replacement notes providing deferred payments.
- For dissenting senior secured noteholders receiving replacement notes, the bankruptcy court set a cramdown interest rate using a Till-style formula (prime plus risk adjustment), producing rates around 4.1% and 4.85%, despite evidence that market financing would price higher (about 5–6+%).
- The plan treated second-lien note claims as senior to subordinated notes based on contractual subordination provisions.
- The bankruptcy court confirmed the plan, denied the make-whole claim, applied the formula interest-rate approach, and enforced the asserted subordination; the district court affirmed.
- Multiple creditor groups appealed; the debtors sought dismissal based on equitable mootness due to substantial consummation of the plan.

## Issues

1. Whether the appeals should be dismissed as equitably moot after substantial consummation of the confirmed plan.
2. Whether the senior secured noteholders were entitled to a contractual make-whole premium based on the indentures’ redemption and acceleration provisions.
3. Under 11 U.S.C. § 1129(b), whether a chapter 11 cramdown interest rate on replacement notes must be a market rate when an efficient market exists, or may be set by a Till-style formula.
4. Whether the subordinated notes were contractually subordinated to the second-lien notes under the applicable subordination language and 11 U.S.C. § 510(a).

## Decision

- The court declined to dismiss the appeals as equitably moot because effective relief could be granted without unwinding the plan.
- The court affirmed denial of the make-whole premium, holding the indentures did not require it in the circumstances presented.
- The court vacated and remanded the cramdown interest-rate ruling because the bankruptcy court used a Till-style formula without first determining whether an efficient market for similar financing existed.
- The court affirmed that the second-lien notes had priority over the subordinated notes based on enforceable contractual subordination.

## Legal Principles

- Equitable mootness is a prudential doctrine applied narrowly; an appeal should not be dismissed where relief can be granted without materially destabilizing the confirmed plan or unfairly harming reliance interests.
- A make-whole premium is recoverable in bankruptcy only if the governing contract clearly triggers it; automatic acceleration upon a bankruptcy filing is not, by itself, an “optional redemption” that activates a make-whole provision conditioned on issuer election.
- For chapter 11 cramdown notes issued to dissenting secured creditors, the interest rate must ensure present value under § 1129(b); courts must use a two-step approach:
  - If an efficient market exists for a loan comparable to the replacement notes, the court must apply the market rate.
  - If no efficient market exists, the court may apply a formula rate (prime plus a risk adjustment) consistent with Till’s general approach.
- Contractual subordination agreements are enforceable under 11 U.S.C. § 510(a) according to their terms when the language unambiguously establishes priority among creditor classes.

## Conclusion

The Second Circuit upheld the plan’s denial of a make-whole premium and enforcement of subordination, but required a market-based cramdown interest rate when an efficient market exists, remanding for findings and recalculation of the replacement-note rate under that market-first framework.


In re MPM Silicones, L.L.C., 874 F.3d 787 (2d Cir. 2017)