## Facts

- The New York, New Haven, and Hartford Railroad Co. (debtor) filed for bankruptcy, and the court appointed a trustee to administer the estate.
- In order to evaluate a reorganization plan as fair, equitable, and feasible, the bankruptcy court needed to determine the value of the debtor’s assets.
- The trustee argued the debtor should be valued primarily by reference to its possible earning potential after reorganization, and proposed a value between $120 million and $150 million.
- The first-mortgage bondholders argued the debtor should be valued by its current market value, and proposed a value of $71 million.
- The income bondholders proposed a different valuation method and placed the debtor’s value between $174.5 million and $246 million.
- The parties’ sharply different valuations affected how much value would be available for distribution among creditor groups under a plan and whether junior interests could receive any recovery consistent with priority rules.

## Issues

1. In valuing a railroad debtor for purposes of assessing a reorganization plan, should the court rely primarily on prospective earning potential, current market value, or another method?
2. How should the court weigh market evidence and other valuation inputs when experts propose widely divergent valuations?
3. What valuation finding is required for the court to assess whether plan treatment of creditor classes satisfies statutory standards of fairness, equity, and feasibility?

## Decision

- The court treated valuation as a required predicate to evaluating whether a plan could meet the statutory standards for confirmation.
- The court considered the competing approaches offered by the trustee, first-mortgage bondholders, and income bondholders, including the trustee’s forward-looking earnings-based method and the bondholders’ market-focused methods.
- The court declined to accept the parties’ most extreme valuation positions and instead made its own valuation determination based on the evidence presented.
- The court’s valuation analysis informed how the court evaluated proposed plan distributions and whether the allocation of value among creditor groups could be justified under bankruptcy priority rules.

## Legal Principles

- A reorganization plan in a railroad bankruptcy must be fair, equitable, and feasible, and the court’s valuation of the debtor is central to those determinations.
- Valuation is a fact-intensive judicial finding; the court may consider multiple forms of evidence, including market indicators and forward-looking assessments of post-reorganization earnings.
- Market prices are relevant evidence but are not necessarily controlling when the court must determine value for plan purposes rather than liquidation.
- Priority rules limit distributions to junior creditor groups unless the court’s valuation shows sufficient value to satisfy senior claims to the extent required by bankruptcy law.

## Conclusion

In *In re New York, New Haven and Hartford Railroad Co.*, the bankruptcy court valued the debtor to assess whether a reorganization plan could satisfy statutory confirmation standards, weighed competing earning-potential and market-based valuation theories advanced by different bondholder groups, rejected extreme valuations, and made an independent valuation finding that guided the court’s evaluation of plan fairness, equity, feasibility, and creditor priority.


In re New York, New Haven and Hartford Railroad Co., 4 Bankr. 758 (1980)