## Facts

- Three related Chapter 11 debtors were involved: a parent holding company, an entity holding waste-disposal technology licenses and sublicensing rights, and an entity owning a non-operational waste-processing plant in Philadelphia.
- The Philadelphia plant had not been successfully completed or operated and required substantial additional capital to become functional.
- A primary secured lender financed construction of the plant, held a first mortgage on the facility, and asserted secured and unsecured claims totaling about $8.07 million.
- A second creditor asserted claims secured by stock and sublicenses associated with the licensing entity.
- Outside investors proposed the reorganization plan, including new management and projections tied to rehabilitating and operating the plant.
- The plan substantively consolidated the three debtors and pooled their assets and liabilities for plan treatment.
- The plan classified all of the primary secured lender’s claims in a single class and proposed deferred payments at a prime-rate interest with a balloon payment after ten years.
- The plan placed the second creditor’s asserted secured claims in a class with general unsecured creditors.
- The plan proposed assumption of executory technology license agreements with licensors, requiring cure and adequate assurance of future performance.
- Objecting creditors argued the plan depended on speculative, uncommitted financing, failed to provide present value to the secured lender, improperly treated secured claims as unsecured, and lacked adequate assurance for license assumption.

## Issues

1. Whether the plan was feasible under 11 U.S.C. § 1129(a)(11) given the non-operational plant, uncertain revenues, and reliance on uncommitted financing.
2. Whether the plan satisfied cramdown requirements for the primary secured lender under 11 U.S.C. § 1129(b)(2)(A)(i)(II), including whether the proposed interest rate and long balloon payment provided present value of the secured claim.
3. Whether the plan’s classification and treatment of creditors, including placing asserted secured claims with unsecured claims, satisfied the “fair and equitable” requirements of § 1129(b) and the Code’s priority structure.
4. Whether the plan could assume executory license agreements under 11 U.S.C. § 365 by curing defaults and providing adequate assurance of future performance.

## Decision

- Confirmation of the proposed Chapter 11 plan was denied.
- The court found the plan not feasible under § 1129(a)(11) because it depended on speculative funding and uncertain operational prospects for an unproven, non-operational facility.
- The court concluded the plan failed the secured-creditor cramdown standard under § 1129(b)(2)(A)(i)(II) because the proposed prime-rate interest and ten-year balloon did not adequately account for risk and therefore did not provide present value.
- The court determined the plan’s treatment and classification of the second creditor’s asserted secured claims with unsecured claims was inconsistent with proper recognition of secured status and contributed to nonconfirmability.
- The court expressed doubt that the plan could provide adequate assurance of future performance required to assume the licensors’ executory agreements, given the plan’s financial and operational uncertainty.

## Legal Principles

- A plan is not feasible under 11 U.S.C. § 1129(a)(11) when its success depends on uncommitted financing and speculative projections, particularly where the debtor lacks an operating track record for the proposed business.
- Under 11 U.S.C. § 1129(b)(2)(A)(i)(II), deferred payments to a crammed-down secured creditor must equal the present value of the secured claim as of the effective date; the interest rate must reflect the risk of nonpayment.
- A proposed cramdown rate tied to prime may be insufficient when the reorganized debtor presents materially higher risk, especially with long deferrals and a balloon payment structure.
- Classification and treatment under § 1129(b) must respect secured status; placing asserted secured claims into an unsecured class without satisfying the Code’s protections for secured creditors weighs against confirmation.
- Assumption of executory contracts under 11 U.S.C. § 365 requires cure (or adequate provision for cure) and adequate assurance of future performance; financial uncertainty may defeat adequate assurance.

## Conclusion

The bankruptcy court denied confirmation because the plan relied on uncertain financing and unproven operations, did not provide the secured lender present value through an appropriate risk-adjusted cramdown interest rate, and inadequately addressed secured-creditor treatment and executory contract assurance requirements.


In re Orfa Corp. of Phila., 129 B.R. 404 (Bankr. E.D. Pa. 1991)