Momentive Performance Materials Inc. v. BOKF, NA

Three groups of creditors separately appeal a judgment of the United States District Court of the Southern District of New York (Briccetti, J.) affirming the confirmation of Debtors’ Chapter 11 reorganization plan by the U.S. Bankruptcy Court (Drain, /.). The creditors argue that the plan improperly eliminated or reduced the value of notes they held. Debtors argue that the plan was properly confirmed and that these appeals should be dismissed as equitably moot. With one exception, we conclude that the plan confirmed by the bankruptcy court and affirmed by the district court comports with the provisions of Chapter 11. We remand so that the bankruptcy court can address the single deficiency we identify with the proceedings below which is the process for determining the proper interest rate under the cram-down provision of Chapter 11. We decline to dismiss these appeals as equitably moot.

These appeals by three groups of creditors challenge various aspects of Appellee Momentive Performance Materials, Inc.’s (“MPM,”) substantially consummated plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code.1 With one exception, we conclude that the reorganization plan (the “Plan”) confirmed by the bankruptcy court and affirmed by the district court comports with Chapter 11. We remand so that the bankruptcy court can address the single .deficiency we identify in the proceedings below, which is the process for determining the proper interest rate under the cramdown provision of Chapter 11. ;

I

MPM, a leading producer of silicone, faced serious financial problems after it took on significant new debt obligations beginning in the mid-2000s.2 See 15-1771 JA 286-88; 15-1682 JA 1605-06.3 Following these debt issuances, MPM was substantially overleveragéd, and, ultimately filed a petition under Chapter 11. The four relevant classes of notes' issued by MPM are as follows:

Subordinated Notes. In 2Q06, MPM issued $500 million in subordinated unsecured notes (the “Subordinated Notes”) pursuant to an indenture (the “2006 Indenture”). 15-1771 JA 303. Appellant U.S. Bank is the indenture trustee for the Subordinated Notes. In 2009 MPM issued secured second-lien notes and offered the Subordinated Notes holders the option of exchanging their notes for the newly-issued second-lien notes. The second-lien notes were offered at a 60% discount .but were secured. 15-17,71 JA 2241. Holders of $118 million of the Subordinated Notes accepted the offer, leaving $382 million, in unsecured Subordinated Notes outstanding. 15-1771 JA-2241.

Second-Lien Notes. In 2010, MPM issued approximately $1 billion in “springing” second-lien notes (the- “Second-Lien Notes”). 15-1682 JA 1616; 15-1771 JA 476. The Second-Lien Notes were to be unsecured until the $118 million of previously exchanged Subordinated Notes were redeemed, at which point the “spring” in the lien would be triggered. 15-1771 JA 517, 580-81. Once triggered, the Second-Lien Notes would then (but only then) obtain a security interest in the Debtor’s collateral. The exchanged Subordinated Notes were redeemed in November 2012, 15-1771. JA 721, at which point the trigger occurred and the Second-Lien Notes became secured with second-priority liens junior to other pre-existing liens on the Debtors’ collateral. A primary issue on this appeal is whether the Second-Lien Notes have priority over the Subordinated Notes.

Senior-Lien Notes. In 2012, MPM again issued more debt, this time in the form of two classes of senior secured notes. Specifically, MPM issued $1.1 billion in first-lien secured notes (the “First-Lien Notes”), and $250 million in 1.5-lien secured notes (the “1.5-Lien Notes,” and, with the First-Lien Notes, the “Senior-Lien Notes”). 15-1682 JA 1615. Appellants BOKF and Wilmington Trust are the indenture trustees for the First-Lien Notes and 1.5-Lien Notes,' respectively. Pursuant to the governing indentures (the “2012 Indentures”), the Senior-Lien Notes were to be repaid in full by their maturity date of October 15, 2020. They carried fixed interest rates of 8.875% and 10%, respectively. The 2012 Indentures also called for the recovery of a “make-whole” premium if MPM opted to redeem the notes prior to maturity. Because the Second-Lien Notes and the Senior-Lien Notes are secured by the same collateral, the holders of those notes executed an intercreditor agreement (the “In-tercreditor Agreement”), which provided that the Senior-Lien Notes stood in priority to the Second-Lien Notes as to their respective hens, but that each was junior to pre-existing liens on MPM’s collateral. 15-1771 JA 691-718. Other primary issues on this appeal are whether the Senior-Lien Note holders are entitled to the make-whole adjustment and the cramdown interest rate they are entitled to if their Notes are replaced under the Plan.

II

After these notes were issued, MPM experienced significant financial problems. See 15-1771 JA 284-88. In April 2014, MPM filed a petition under Chapter 11 and ultimately submitted a reorganization plan to the bankruptcy court. 15-1682 JA 3841-912. Several elements of that Plan are at issue on these appeals. The Plan provided for (i) a 100% cash recovery of the principal balance and accrued interest on the Senior-Lien Notes; (ii). an estimated 12.8%-28.1% recovery on the Second-Lien Notes in the form of equity in the reorganized Debtors; but (iii) no recovery on the Subordinated Notes. 15-1771 JA 271-74.

The Plan also gave the Senior-Lien Notes holders the option of (i) accepting the Plan and immediately receiving a cash payment of the outstanding principal and interest due on their Notes (without a make-whole premium), or (ii) rejecting the Plan, receiving replacement notes “with a present value equal to the Allowed amount of such holder’s [claim],” and then litigating in the bankruptcy court issues including whether they were entitled to the make-whole premium and the interest rate on the replacement notes. 15-1771 JA 271-72; 15-1682 JA 3873-75. The Senior-Lien Notes holders rejected the Plan, and, thus, elected the latter option.

The appellants here—the Subordinated Notes holders and the Senior-Lien Notes holders—opposed the Plan. (The Second-Lien Notes holders unanimously accepted it.) The Subordinated Notes holders, who were to receive nothing, contended that, under relevant indenture provisions, their Notes were not subordinate to the Second-Lien Notes holders and, consequently, they were entitled to some recovery. The Senior-Lien Notes holders opposed the Plan on the ground that the replacement notes they received did not provide for the make-whole premium, and carried a largely risk-free interest rate that failed to comply with the Code because it was well below ascertainable market rates for similar debt obligations and thus was not fair and equitable because it failed to give them the present value of their claim.

Despite these objections, the bankruptcy court confirmed the Plan following a four-day hearing. In re MPM Silicones, LLC, 2014 WL 4436335 (Bankr. S.D.N.Y. Sept. 9, 2014), aff'd, 531 B.R. 321 (S.D.N.Y. 2015). Confirmation was facilitated by Chapter ll’s “cramdown” provision, which allows a bankruptcy court to confirm a reorganization plan notwithstanding non-accepting classes if the plan “does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.” 11 U.S.C. § 1129(b)(1).

The bankruptcy court concluded that the Plan was fair to the Subordinated Notes holders, despite no recovery, because the 2006 Indenture called for their subordination to the Second-Lien Notes. In re MPM Silicones, LLC, 2014 WL 4436335, at *2-*11. It held the plan was fair to the Senior-Lien Notes holders because the 2012 Indentures did not require payment of the make-whole premium in the bankruptcy context and because the interest rate on the proposed replacement notes, even though well below a “market” rate, was determined by a formula that complied with the Code’s cramdown provision. Id. at *ll-*32.

The bankruptcy court’s confirmation order triggered an automatic 14-day stay during which Debtors could not consummate the Plan. See Fed. R. Bankr. P. 3020(e). Appellants aggressively took advantage of this period and attempted to block the implementation of the Plan. Specifically, prior to the expiration of the automatic stay, appellants moved in the bankruptcy court to extend the stay pending their' appeal of the confirmation order, which the court denied. See 15-1682 JA 4099, 4173. They then promptly moved the district court for a stay, which was also denied. See 15-1682 JA 183, 185. Appellants then appealed the denial of the stay to this Court, and we dismissed the appeal for lack of jurisdiction. 15-1682 JA 4872-73. Despite these efforts, the Debtors contend this appeal is equitably moot, a contention with which we do not agree.

The appellants appealed the confirmation order to the district court which affirmed the bankruptcy court’s confirmation order. 531 B.R. 321. The district court essentially agreed with the bankruptcy court, concluding that: (i) the relevant indentures unambiguously prioritize the Second-Lien Notes over the Subordinated Notes, id. at 326-31; (ii) the below market interest rate selected by the bankruptcy court complied with the Code, id. at 331-34; and (iii) under their indentures, the Senior-Lien Notes holders are not entitled to the make-whole premium in the context of a bankruptcy, id. at 335-38. The Subordinated Notes holders, the First-Lien Notes holders, and the 1.5-Lien Notes holders separately appealed.4

III

“We exercise plenary review over a district court’s affirmance of a bankruptcy court’s decisions, reviewing de novo the bankruptcy court’s conclusions of law, and reviewing its findings of facts for clear error.” In re Lehman Bros., Inc., 808 F.3d 942, 946 (2d Cir. 2015) (internal quotation marks omitted).

IV

These appeals raise four issues. First, the Subordinated Notes holders challenge the lower courts’ conclusions that their claims are subordinate to the Second-Lien Notes holders’ claims. Second, the Senior-Lien Notes holders contend that the lower courts erroneously applied a below-market interest rate to their replacement notes. Third, the Senior-Lien Notes holders challenge the lower courts’ rulings that they are not entitled to a make-whole premium. Finally, Debtors argue that we should dismiss these appeals as equitably moot. We find merit only in the Senior-Lien Notes holders’ contention with respect to the method of calculating the appropriate interest rate for the replacement notes. We reject the others.

A

The lower courts concluded that the Plan, which provided no distribution to the Subordinated Notes holders, complied with the governing 2006 Indenture. The Subordinated Notes holders argue this conclusion was erroneous because, under the terms of the 2006 Indenture, their claims are not subordinate to the. Second-Lien Notes, whose holders recovered under the plan. The Debtors, on the other hand, contend that the 2006 Indenture gives the Second-Lien Notes priority over the Subordinated Notes. We agree with the Debtors, although for somewhat different reasons from the lower courts which found the relevant indenture provisions unambiguous. We find them to be ambiguous, but resolve the ambiguities in favor of the Debtors.

The Subordinated Notes holders’ argument begins with Section 10.01 of the 2006 Indenture, which states that the Subordinated Notes are “subordinated in right of payment ... to the prior payment in full of all existing and future Senior Indebtedness of the Company,” and that “only Indebtedness of the Company that is Senior Indebtedness of the Company shall rank senior to the Securities in accordance with the provisions set forth herein.” 15-1771 JA 404. Accordingly, the Second-Lien Notes stand in priority to the Subordinated Notes only if they constitute “Senior Indebtedness.”

“Senior Indebtedness” in the 2006 Indenture begins with what the parties refer to as the “Baseline Definition,” which defines Senior Indebtedness as:

all Indebtedness ... unless the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such obligations are subordinated in right of payment to any other Indebtedness of the Company ...

15-1771 JA 341.

It is undisputed that the Second-Lien Notes are not subordinated in right of payment to any other indebtedness and that therefore they satisfy the Baseline Definition of Senior Indebtedness. However, the Baseline Definition is then subject to six enumerated exceptions, the fourth of which (the “Fourth Proviso”) excepts from Senior Indebtedness:

any Indebtedness or obligation of the Company ... that by its terms is subordinate or junior in any respect to any other Indebtedness or obligation of the Company ... including any Pari Passu Indebtedness.

15-1771 JA 342 (emphasis added).

The Subordinated Notes holders argue that the Fourth Proviso carves out the Second-Lien Notes from the Baseline Definition, ie., that the Second-Lien Notes are an “[indebtedness or obligation of the Company ... that' by its terms is subordinate or junior in any respect to any other Indebtedness of the Company.” The Subordinated Notes holders rely heavily on the “in any respect” language. They argue that the Second-Lien Notes are subordinate to, for example, the First-Lien Notes—because, pursuant to the Inter-creditor Agreement, the liens supporting the Second-Lien Notes are junior to the liens supporting the First-Lien Notes— and that they are therefore subordinate to other Indebtedness of the company.

The lower courts rejected this argument, and concluded that the Second-Lien Notes unambiguously constitute Senior Indebtedness despite the Fourth Proviso, They did so in reliance on a distinction between “lien subordination” and “payment (or debt) subordination,” concluding that the Fourth Proviso unambiguously carves out from the Baseline Definition only the latter and not the former.5 Because the Second-Lien Notes are not subordinate in payment to other note classes—but rather, the liens supporting their notes are subordinate—the lower courts concluded that the Second-Lien Notes are not covered by the Fourth Proviso.

We do not agree with the lower courts that the Fourth Proviso unambiguously incorporates a distinction between lien subordination and payment subordination. Rather, we conclude that the Fourth Proviso renders the definition of Senior Indebtedness ambiguous ■ as to whether it includes the Second-Lien Notes. Nevertheless, we conclude that this ambiguity should be resolved in Debtors’ favor given the plethora of evidence in the record that the parties intended the Second-Lien Notes to be-Senior Indebtedness.

1

As discussed, the lower courts concluded that the Second-Lien Notes are unambiguously Senior Indebtedness. Under New York law, which governs the Indenture, a fundamental objective of contract interpretation is to give effect to the expressed intention of the parties. The initial inquiry is whether the contractual language, without reference to sources outside the text of the contract, is ambiguous. 'Contract language is ambiguous if it is capable of more than one meaning.

We are not persuaded by the Debtors’ (and lower courts’) conclusion that the Fourth Proviso’s reference to “subordinate ... in any respect” unambiguously refers only to payment subordination and not to lien subordination. The Debtors read the Fourth Proviso as if it states “subordinate ... in right of payment,” which of course it does not. In so doing, the Debtors disregard the breadth of the term “in any respect,” a term which is generally thought to be as broadly encompassing as possible.6 And, as a practical matter, it seems to us illogical to believe that a second-lien holder does not possess an obligation that is meaningfully subordinate in some respect to a first-lien holder. These sophisticated parties knew how to cabin the type of subordination to which they refer; the indenture uses the term “subordinate ... in right of payment” many times, including in the Baseline Definition itself.

Moreover, the Debtors’ interpretation renders language in the indenture superfluous, which is a common sign of ambiguity. See RJE Corp. v. Northville Indus. Corp., 329 F.3d 310, 314 (2d Cir. 2003) (in assessing ambiguity, courts consider the entire contract “to safeguard against adopting an interpretation that would render any individual provision superfluous” (internal quotation marks omitted)); see also Lawyers’ Fund for Client Protection of State of N.Y. v. Bank Leumi Trust Co. of New York, 94 N.Y.2d 398, 404, 706 N.Y.S.2d 66, 727 N.E.2d 563 (N.Y. 2000) (concluding that an interpretation that renders a portion of a contract superfluous is “unsupportable: under standard principles of contract interpretation”). Specifically, if the Fourth Proviso only excepts debt subordinate in right of payment, there is no purpose for the “in right of payment” carve-out in the Baseline Definition. We disagree with the lower courts’ attempts to interpret away this superfluity by finding a distinction between “expressly” (in the Baseline Definition) and “by its terms” (in the Fourth Proviso). We see no meaningful distinction between those terms.

Nevertheless, we also conclude that the Subordinated Notes holders’ interpretation, that the Fourth Proviso unambiguously excludes the Second-Line Notes from the definition of Senior Indebtedness, is incorrect. As the lower courts correctly concluded, the Subordinated Notes holders’ interpretation renders key parts of the Baseline Definition superfluous. Under their reading, that definition excludes from Senior Indebtedness only obligations subordinate “in right of payment,” but the Fourth Proviso excludes all obligations that stand behind any type of other obligation. If so, the Baseline Definition’s more limited carve-out for debt subordinate “in right of payment” would be unnecessary, because all such debt would be carved out from the definition of Senior Indebtedness by the Fourth Proviso.

As the Subordinated Notes holders correctly acknowledge, “[f]or this indenture, it simply is not possible to avoid superfluity.” 15-1771 Br. of Appellant 54 (internal quotation marks omitted). Where, as here, varying interpretations render contractual language superfluous, we are not obligated to arbitrarily select one as opposed to another. Because the 2006 Indenture is open to differing reasonable interpretations as to whether the Second-Lien Notes constitute Senior Indebtedness, we conclude that it is ambiguous as a matter of law.

2

Where a contract term is ambiguous, we look to extrinsic evidence to determine the intention of the parties. That evidence can include the parties’ apparent intention, Walk-In Medical Centers, Inc. v. Breuer Capital Corp., 818 F.2d 260, 264 (2d Cir. 1987), what would be commercially reasonable, Fundamental Long Term Care Holdings, LLC v. Cammeby’s Funding LLC, 20 N.Y.3d 438, 445, 962 NY.S.2d 583, 985 N.E.2d 893 (2013), and the “parties’ interpretation of the contract in practice, prior to litigation,” Ocean Transp., Inc. v. American Philippine Fiber Indus., Inc., 743 F.2d 85, 91 (2d Cir. 1984). Applying these tools, we conclude, as did the district court, that the parties understood that the Second-Lien Notes constituted Senior Indebtedness. See 531 B.R. at 331 n.7.

First, MPM repeatedly represented to the Securities Exchange Commission and to the financial community that the Second-Lien Notes were Senior Indebtedness. It did so in its prospectuses, 8-Ks and 10-Ks. For example, it disclosed in a November 2010 8-K that the Second-Lien Notes are “senior indebtedness of the Company ... and will rank ... senior in right of payment to all existing and future subordinated indebtedness.” 15-1771 JA 3057; see also 15-1771 JA 2231. It went further when it subsequently resold certain Subordinated Notes. In a May 2013 prospectus, MPM restated that the Subordinated Notes “are subordinated to all our existing and future senior debt, including the ... Second-Priority Springing-Lien Notes.” MPM also specifically identified as the first risk related to the Subordinated Notes that those holders’ “right to receive payments on the Notes is junior to those lenders who have a security interest in our assets.” 15-1771 JA 3007, 3010. MPM further asserted that in the event it were to file for bankruptcy and were unable to repay its secured debt, “it is possible that there would be no assets remaining from which your claims could be satisfied.” 15-1771 JA 3010. The Subordinated Note holders knew all of this because the Debtors were contractually obligated, pursuant to Section 4.02 of the 2006 Indenture, to provide copies of its 10-Ks, 10-Qs, 8-Ks, and all other required disclosures both to the Subordinated Note holders as well as to their Trustee—a highly sophisticated group of investors. 15-1771 JA 357. There is no dispute that these disclosures occurred. Consequently, it was widely understood in the investment community that the Second-Lien Notes had priority.

Second, the Subordinated Notes holders’ interpretation generates the irrational outcome that the springing of the Second-Lien Notes’ security interest, which was meant to enhance the note holders’ protection, would actually strip those notes of their status as Senior Indebtedness and therefore their priority over the Subordinated Notes. As the bankruptcy court concluded, “[t]here is no logical reason for such a distinction, notwithstanding the subordinated noteholders’ attempt to find one.” 2014 WL 4436335, at *9.

Third, the Subordinated Notes holders’ proposed interpretation that “in any respect” covers all junior liens would mean that no senior note classes would qualify as Senior Indebtedness because each was secured in some respect by a junior lien. For example, the First-Lien Notes were secured in part by a second priority lien on collateral securing a prepetition revolving credit facility. See 15-1771 JA 2425-26. We think it highly improbable that anyone understood this interpretation to be correct. Certainly MPM did not. For example, in a December 2012 prospectus MPM represented to the SEC that the Senior-Lien Notes were Senior Indebtedness. 15-1771 JA 3725. Because those note classes are subordinate to pre-existing liens as to the Debtors’ collateral, they, too, would seemingly not qualify as Senior Indebtedness under the Subordinated Notes holders’ interpretation. In light of these factors, we have little trouble concluding that the extrinsic evidence establishes that the most reasonable interpretation of the Indenture is that the Second-Lien Notes are Senior Indebtedness. The judgment of the district court on that issue is, therefore, affirmed.

B

As a consequence of rejecting the Plan, the Senior-Lien Notes holders received'replacement notes which pay out their claim over time. The Code permits debtors to make such “deferred cash payments” to secured creditors (ie., to “cramdown”). 11 U.S.C. § 1129(b)(2)(A)(i)(II). However, those payments must ultimately amount to the full value of the secured creditors’ claims. Id. To ensure the creditor receives the full present value of its secured claim, the deferred payments must carry an appropriate rate of interest. See Rake v. Wade, 508 U.S. 464, 472 n.8, 113 S.Ct. 2187, 124 L.Ed.2d 424 (1993).

The rate selected by the lower courts for the Senior-Lien Note holders’ replacement notes was based on the “formula” rate. The bankruptcy court selected interest rates of 4.1% and 4.85%, respectively, which were largely risk-free rates slightly adjusted for appropriate risk factors. It is not disputed that this rate is below market in comparison with rates associated with comparable debt obligations. The Debtors defend the application of the “formula” method on the ground that it is required by the plurality opinion in the Chapter 13 case of Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004).

The Senior-Lien Notes holders contend that because this rate is too low, the Plan is not “fair and equitable” as required by § 1129(b). They argue that the lower courts should have applied a market rate of interest which is the rate MPM would pay 'to a contemporaneous sophisticated arms-lengfch lender in the open market. The Senior-Lien Notes holders argued in the bankruptcy court that such a market exists and would generate interest in, the 5-6 + % range. See 15-1682 JA 464, 1941.7

The bankruptcy court rejected this approach, and concluded that a cramdown interest rate should “not take market factors into account.” 2014 WL 4436335, at *25. Viewing itself as “largely governed by the principles enunciated by the plurality opinion in Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004),” it concluded that the proper rate was "what the plurality in Till referred to as the “formula” or “prime-plus” rate (discussed , inore fully beíow). Id. at *24, *26. The district court agreed. 531 B.R. at 332-34. The Senior-Lien Notes holders argue on appeal that the lower courts erred in concluding that the Till plurality opinion is wholly applicable to this Chapter 11 proceeding. In substantial part, we agree.

At issue in Till was,a Chapter 13 debt- or’s sub-prime auto loan, carrying an interest rate of 21% and providing the creditor with a $4,000 secured claim. As with Chapter 11, Chapter 13 allows debtors to provide secured creditors with future property distributions (such as deferred cash payments) whose total “value, as of the effective date of the plan, ... is not less than the allowed amount of such claim.” 11 U.S.C. § 1325(a)(5)(B)(ii). The question became, as here, how to calculate the interest on the deferred payments such that the creditor would receive the full value of its claim. No single interest-calculation method secured a majority vote on the Court, resulting in a plurality opinion endorsing the “formula” method.

The “formula” approach endorsed by the Till plurality instructs the bankruptcy court to begin ■with a largely risk-free interest rate, specifically, the “national prime rate ... which reflects the financial market’s estimate of the amount a commercial bank should charge a creditworthy commercial borrower to compensate for the opportunity costs of the loan, the risk of inflation, and the relatively slight risk of default.” 541 U.S. at 479, 124 S.Ct. 1951. The bankruptcy court should then hold a hearing to determine a proper plan-specific risk adjustment to that prime rate “at which the debtor and any creditors may present evidence.” Id. Using this approach, “courts have generally approved adjustments [above the prime rate] of 1% to 3%.” Id. at 480, 124 S.Ct. 1951.8

The Till plurality arrived at the “formula” rate after rejecting a number of alternative methods relied on by the lower courts. Significantly, it rejected methods relying on purported “market” rates of interest because those rates “must be high enough to cover factors, like lenders’ transactions costs and overall profits, that are no longer relevant in the context of court-administered and court-supervised cramdown loans.” 541 U.S. at 477, 124 S.Ct. 1951. The' plurality then identified the only factors it viewed as relevant in properly ensuring that the sum of deferred payments equals present value: (i) the time-value of money; (ii) inflation; and (iii) the risk of non-payment. Id. at 474, 124 S.Ct. 1951. The plurality concluded that the “formula” or “prime-plus” method best reflects those considerations.

Although Till involved a Chapter 13 petition, the plurality intimated that the “formula” method might be applicable to rate calculations made pursuant to other similarly worded Code provisions. In fact, it cited the Chapter 11 cramdown provision, 11 U.S.C. § 1129(b)(2)(A)(i)(II), among ,many other provisions, when it noted that “[w]e think it likely that Congress intended bankruptcy judges and trustees to follow essentially the same approach when choosing an appropriate interest rate under any of these [Code] provisions.” Id. at 474 & n.10, 124 S.Ct. 1951.

Despite that language, however, the plurality made no conclusive statement as to whether the “formula” rate, was generally required in Chapter 11 cases. And, notably, the plurality .went on to state, in the opinion’s much-discussed footnote 14, that the approach it felt best applied in the Chapter 13 context may not be suited to Chapter 11. .Specifically,, in that footnote, the Court stated that in Chapter 13 cram-downs “there is no free market of .willing cramdown lenders.” 541 U.S. at 476 n.14, 124 S.Ct. 1951. It continued: “[interestingly, the same is not true in the Chapter 11 context, as numerous lenders advertise financing for Chapter 11 debtors in possession. Thus, when picking a cramdown rate in a Chapter 11 case, it might make sense to ask what rate an efficient market would produce.” Id. (internal citations omitted) (emphasis in original).9

Many courts have relied on footnote 14 to conclude that efficient market rates for cramdown loans cannot be ignored in Chapter 11 cases. Most notably, the Sixth Circuit, “tak[ing] [its] cue from Footnote 14” of the Till plurality, adopted a two-part process for selecting an interest rate in Chapter 11 cramdowns:

[T]he market rate should be applied in Chapter 11 cases where there exists an efficient market. But where no efficient market exists for a Chapter 11 debtor, then the bankruptcy court should employ the formula approach endorsed by the Till plurality.

In re American HomePatient, Inc., 420 F.3d 559, 568 (6th Cir. 2005). In applying this rule, courts have held that markets for financing are ‘efficient’ where, for example, “they offer a loan with a term, size, and collateral comparable to the forced loan contemplated under the cramdown plan.” In re Texas Grand Prairie Hotel Realty, L.L.C., 710 F.3d 324, 337 (5th Cir. 2013).10

We adopt the Sixth Circuit’s two-step approach, which, in our view, best aligns with the Code and relevant precedent. We do not read the Till plurality as stating that efficient market rates are irrelevant in determining value in the Chapter 11 cram-down context. And, disregarding available efficient market rates would be a major departure from long-standing precedent dictating that “the best way to determine value is exposure to a market.” Bank of Am. Nat’l Trust and Sav. Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S. 434, 457, 119 S.Ct. 1411, 143 L.Ed.2d 607 (1999) (assessing a Chapter 11 cramdown); see also United States v. 50 Acres of Land, 469 U.S. 24, 25 & n.1, 105 S.Ct. 451, 83 L.Ed.2d 376 (1984) (“fair market value” is “what a willing buyer would pay in cash to a willing seller” (internal quotation marks omitted)). In Bank of America, the Court noted that “one of the Code’s innovations [was] to narrow the occasions for courts to make valuation judgments,” and expressed a “disfavor for decisions untested by competitive choice ... when some form of market valuation may be available.” Bank of America, 526 U.S. at 457-58, 119 S.Ct. 1411.

The Senior-Lien Notes holders presented expert testimony in the bankruptcy court that, if credited, would have established a market rate. This evidence showed that if the Senior-Lien Noteholders were to have approved the Plan and accepted a cash-out payment for their notes, MPM would have had to secure exit financing to cover the lump-sum payment. In preparation for that possible eventuality (which did not come to pass in light of the Senior-Lien Notes holders’ rejection of the Plan), MPM went out into the market seeking lenders to provide that financing. Those lenders quoted MPM rates of interest ranging between 5 and 6 + %. See In re MPM Silicones, LLC, 2014 WL 4436335, at *29.

At these rates, the First-Lien Note holders contend that they would have received around $150 million more than the Plan offered, Br. of First-Lien Appellant 25, 33. The 1.5-Lien Note holders claim that the interest rate chosen by the lower courts led them to receive notes “valued by the market at less than 93 cents on the value of the secured claims,”.Br. of 1.5-Lien Appellant 20.11 The Plan was objectionable to the Senior-Lien Notes holders because, in essence, it required them to lend Debtors a significant sum of money and receive a much lower rate of interest than any other lender would have received for offering the same loan to MPM on the open market.

When dealing with a sub-prime loan in the Chapter 13 context, “value” can be elusive because the market is not necessarily efficient and the borrower is typically unsophisticated. However, where, as here, an efficient market may exist that generates an interest rate that is apparently acceptable to sophisticated parties dealing at arms-length, we conclude, consistent with footnote 14, that such a rate is preferable to a formula improvised by a court. See Bank of America, 526 U.S. at 457, 119 S.Ct. 1411; see also In re Valenti, 105 F.3d 55, 63 (2d Cir. 1997) (the goal of the cramdown rate “is to put the creditor in the same economic position that it would have been in had it received the value of its allowed claim immediately”); see also 15-1682 JA 3428 (First-Lien Notes holders’ expert testifying that because the First-Lien Notes holders “are pricing it at the market ... they’re being compensated for the underlying risk that they are taking,” and not for any “imbedded profit”).

We understand that .the complexity of the task of determining an appropriate market rate will vary from case to case. In some cases the task will be straightforward, in others it will be more complex. But, at the end of the day, we have no reason to believe the task varies materially in difficulty from the myriad tasks which we regularly rely on the expertise of our bankruptcy courts to resolve.

We therefore conclude that the lower courts erred in categorically dismissing the probative value of market rates of interest. We remand so that the bankruptcy court can ascertain if an efficient market rate exists and, if so, apply that rate, instead of the formula rate.12 We arrive at no conclusion with regard to the outcome of this inquiry.

C

The 2012 Indentures governing the Senior-Lien Notes contain Optional Redemption Clauses, which provide for the payment of a make-whole premium13 (referred to as the “Applicable Premium” in the indentures) if MPM were to “redeem the Notes at its option” prior to October 15, 2015. 15-1682 JA 2322.14 The make-whole premium was intended to ensure that the Senior-Lien Notes holders received additional compensation to make up for the interest they would not receive if the Notes were redeemed prior to their maturity date.

In October 2014, the Debtors, pursuant to the Plan, issued replacement notes to the Senior-Lien Notes holders, which did not account for the make-whole premium. These holders contended, that the failure to include that premium violated the 2012 Indentures. The bankruptcy court concluded that the Senior-Lien Notes holders were not entitled to the premium. It reasoned that under the 2012 Indentures the make-whole premium would be due only in the case of an “optional redemption” and not in the case of an acceleration brought about by a bankruptcy filing. 2014 WL 4436335, at *11-*15. The district court agreed. 531 B.R. at 335-38. We too agree.

The Senior-Lien Notes holders claim entitlement to the make-whole premium for essentially three reasons: (i) they are entitled "to the make-whole under the 2012 Indentures’ Optional Redemption Clauses; (ii) they are entitled to it under the 2012 Indentures’ Acceleration Clauses; and (iii) even if the indentures did not allow for a make-whole • premium upon acceleration, they should not have been permanently barred from exercising their contractual right to rescind acceleration and thereby obtain the make-whole premium.

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The Senior-Lien Notes holders’ principal argument is that they are entitled to the make-whole premium because when MPM issued the replacement notes under the Plan, it “redeemed” the Notes “at its' option” prior to maturity. This argument fails for the same reasons we rejected nearly identical arguments in In re AMR