Issue link: https://mbozikis.ufcontent.com/i/1422521
175 However, the so-called "new value exception," a common law exception to the absolute priority rule, permits the debtor or plan proponent to include a provision in the plan whereby existing shareholders or equity holders contribute new value to the debtor's estate in order to retain their equity interests in the reorganized entity even though one or more senior classes is not receiving payment in full under the Chapter 11 plan. Although the U.S. Supreme Court has never definitively ruled on the viability of the new value exception, it has limited the exception's applicability by requiring such a provision to be market-tested if it is to be utilized. See Bank of Am. Nat'l Trust & Savs. Ass'n v. 203 N. LaSalle St. P'ship, 526 U.S. 434, 458 (1999) (noting that even in the event that a new value exception even exists, a Chapter 11 plan that granted its pre-bankruptcy partners the exclusive right to acquire equity in the reorganized entity through the contribution of new value violated the Bankruptcy Code's absolute priority rule). b. Cramup In certain situations where a secured debt carries an interest rate that is significantly lower than the current market rate and has a reasonable maturity date, the plan proponent may choose to leave that secured debt unimpaired under the plan in order to take advantage of the relatively favorable terms of such secured debt, notwithstanding the occurrence of certain breaches that would otherwise entitle the secured creditor to accelerate the debt. This is also commonly referred to as "cram up." However, when a default has occurred that would otherwise entitle the secured creditor to accelerate its debt, the plan can only reinstate the secured debt if the plan satisfies the requirements of Section 1124(2), discussed in Chapter VI.F.3., as applicable to the secured creditor class at issue. c. Entity Valuation It is often necessary in the context of a nonconsensual confirmation to determine the debtor's value. See H.R. REP. NO. 95-595, at 414 (1977) ("a valuation of the debtor's business . . . will almost always be required under Section 1129(b)