## Facts

- Oaks Partners, Ltd., a Georgia limited partnership, owned an apartment complex as its principal asset and filed for Chapter 11 reorganization.
- First Union held an approximately $12 million secured claim against the apartment property and proposed a competing plan seeking liquidation of the asset.
- Oaks proposed a reorganization plan premised on long-term retention of the property and projected appreciation tied to planned capital improvements, but the plan did not obligate Oaks to complete those improvements.
- Oaks’ plan also anticipated obtaining additional funds to cover projected operating shortfalls, but failure to obtain those funds was not itself a plan default.
- After earlier rulings addressed collateral value, a cramdown interest rate, and application of postpetition payments, the remaining disputes focused on claim classification and whether the plan’s negative amortization was permissible under 11 U.S.C. § 1129(b).
- As modified, Oaks’ plan used a 10.25% rate as the benchmark cramdown market rate but provided for payment to First Union at 9.85%, deferring the difference.
- The plan negatively amortized roughly $302,000 of interest over the first seven years, with the deferred interest to be paid in full by the end of an 8.5-year plan term.
- First Union, an impaired non-accepting secured creditor class under the plan, objected that negative amortization imposed unreasonable risk and rendered the plan not “fair and equitable.”

## Issues

1. Whether the debtor’s plan, which deferred a portion of interest through limited negative amortization, was “fair and equitable” to the non-accepting secured creditor under 11 U.S.C. § 1129(b) and therefore confirmable by cramdown.
2. Whether the court should confirm the debtor’s reorganization plan or instead confirm the secured creditor’s competing liquidation plan.

## Decision

- The court confirmed Oaks’ Chapter 11 plan as modified and denied confirmation of First Union’s liquidation plan.
- The court held that negative amortization is not automatically barred in a cramdown and, on these facts, the plan satisfied § 1129(b)’s “fair and equitable” requirement for secured claims.
- The court found the negative amortization modest relative to the total secured claim, time-limited, and structured for full repayment within the plan term.
- The court concluded the plan preserved the present value of First Union’s allowed secured claim through the effective interest-rate structure and required deferred payments.
- The court credited that First Union retained its lien and could foreclose upon payment default, limiting creditor risk in light of the plan’s projections.

## Legal Principles

- A Chapter 11 plan may be confirmed over the objection of an impaired class if it meets 11 U.S.C. § 1129(b) by not unfairly discriminating and by being “fair and equitable” as to the dissenting class.
- For secured claims, “fair and equitable” treatment under § 1129(b)(2)(A) generally requires lien retention and deferred cash payments totaling at least the allowed secured claim with a present value equal to that claim.
- Negative amortization in a secured-creditor cramdown is evaluated case-by-case; the key question is whether the plan preserves present value without imposing unreasonable risk on the secured creditor.
- In assessing whether a negatively amortizing plan is fair and equitable, relevant considerations include the size and duration of the deferral, repayment structure, feasibility, and protections such as lien retention and foreclosure remedies.

## Conclusion

The bankruptcy court confirmed a Chapter 11 reorganization plan over a secured creditor’s objection where the plan’s limited, time-bounded negative amortization and effective market-rate treatment preserved the creditor’s present-value entitlement and, with lien and foreclosure protections, satisfied § 1129(b)’s fair-and-equitable standard.


In re Oaks Partners, Ltd., 141 B.R. 453 (Bankr. N.D. Ga. 1992)