In Re Mpm Silicones L.L.C.

874 F.3d 787 (2nd Cir. 2017)


MPM is a producer of silicone. MPM was substantially overleveraged, and ultimately filed a petition under Chapter 11. In 2006, MPM issued $500 million in subordinated unsecured notes (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. Holders of $118 million of the Subordinated Notes accepted the offer, leaving $382 million in unsecured Subordinated Notes outstanding. In 2010, MPM issued approximately $1 billion in 'springing' second-lien notes that 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. 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, and the trigger occurred and the Second-Lien Notes became secured with second-priority liens junior to other pre-existing liens on the Debtors' collateral. In 2012, MPM issued two classes of senior secured notes. It issued $1.1 billion in first-lien secured notes (First-Lien Notes), and $250 million in 1.5-lien secured notes (1.5-Lien Notes, and, with the First-Lien Notes, the Senior-Lien Notes). Appellants BOKF and Wilmington Trust are the indenture trustees for the First-Lien Notes and 1.5-Lien Notes, respectively. 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. The Second-Lien Notes and the Senior-Lien Notes are secured by the same collateral, the holders of those notes executed an inter-creditor agreement, which provided that the Senior-Lien Notes stood in priority to the Second-Lien Notes as to their respective liens, but that each was junior to pre-existing liens on MPM's collateral. In 2014, MPM filed under Chapter 11 and submitted a reorganization plan to the bankruptcy court. 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. The Subordinated Notes holders and the Senior-Lien Notes holders-opposed the Plan. The bankruptcy court confirmed the Plan. Confirmation was facilitated by Chapter 11'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 appellants appealed the confirmation order to the district court which affirmed the bankruptcy court's confirmation order. The Subordinated Notes holders, the First-Lien Notes holders, and the 1.5-Lien Notes holders separately appealed.