## Facts

- Texas Grand Prairie Hotel Realty, LLC and affiliates owned and operated four Texas hotel properties.
- In 2007, the debtors borrowed $49 million to acquire and renovate the hotels, granting liens on substantially all assets; Wells Fargo later acquired the loan.
- After a 2009 downturn, the debtors could not pay at maturity and filed for Chapter 11 on May 13, 2010.
- For plan purposes, the parties used a collateral value of about $39 million (based on the lender’s appraisal).
- The proposed plan treated Wells Fargo as secured up to the collateral value and provided deferred cash payments over a long-term amortization period with interest at 5% (prime plus 1.75%).
- Wells Fargo objected, arguing the cramdown interest rate should be 8.8% based on market terms for comparable distressed commercial lending.

## Issues

1. Whether a Chapter 11 plan satisfies 11 U.S.C. § 1129(b)(2)(A)(i)(II) when it uses a Till-style prime-plus formula, rather than a market rate, to set interest on a crammed-down secured claim.
2. Whether the bankruptcy court clearly erred in finding that a 5% rate (prime + 1.75%) provided Wells Fargo the present value of its allowed secured claim as of the plan’s effective date.

## Decision

- The Fifth Circuit affirmed confirmation of the Chapter 11 plan.
- The court held that applying a prime-plus (formula) method was permissible in Chapter 11 for determining the cramdown rate under § 1129(b).
- The court concluded the bankruptcy court did not clearly err in selecting a 1.75% risk premium over prime, resulting in a 5% rate.
- The court rejected the argument that the rate was invalid merely because it was lower than what a real-world lender would likely offer in the market.

## Legal Principles

- A Chapter 11 cramdown plan must provide deferred cash payments with a value, as of the effective date, at least equal to the secured creditor’s interest in the collateral; this requires an interest rate that yields present value.
- A Till-style prime-plus formula can be used in Chapter 11 to determine the discount rate by starting with the national prime rate and adding a risk premium for nonpayment.
- The size of the risk premium is a fact-intensive determination committed to the bankruptcy court and reviewed on appeal for clear error.
- A cramdown interest rate need not match a hypothetical market rate if the court reasonably finds the selected rate provides the required present value under § 1129(b).

## Conclusion

The Fifth Circuit upheld a confirmed Chapter 11 plan that crammed down a secured creditor’s claim at a 5% prime-plus interest rate, holding that the formula approach was permissible and that the bankruptcy court’s risk adjustment was not clearly erroneous where it supported the statutory present-value requirement.


In re Texas Grand Prairie Hotel Realty, L.L.C., 710 F.3d 324 (5th Cir. 2013)