The opinion of the court was delivered by: J. Ronnie Greer United States District Judge
(Bankruptcy Court Cases No. 04-21339 and 04-21340).
In April 2004, Hank's Dock, Inc., [Hank's Dock] and Seaspan Development Corporation [Seaspan] filed for Chapter 11 bankruptcy protection. [Record on Appeal No. 1; No. 2] [hereinafter "RA ___"]. In November 2004, the debtors filed their first amended joint plan of reorganization. [RA 9] [hereinafter "Plan"]. In December 2004, Interim Capital, LLC, [Interim], one of the debtors' three secured creditors, filed its objections to the Plan, claiming the Plan violated various subparts of 11 U.S.C. § 1129. [RA 13]. Following a hearing in May 2005, the bankruptcy court overruled Interim's objections and confirmed the debtors' Plan. [RA 24]. On May 20, 2005, Interim filed a notice of appeal of the bankruptcy court's decision with this court. [RA 25]. Presently before this court is Interim's appeal. Because this court finds no error in the bankruptcy's court decision, that decision is affirmed. The circumstances surrounding this case were borne out of a January 1998 snow storm that blanketed Carter County, Tennessee. [RA 8, p. 3]. Hank's Dock, the principal offices of which are located in Butler, Carter County, Tennessee, operates a marina and floating store that was substantially damaged in the snowstorm. [Id.]. Seaspan is a Tennessee corporation whose principal offices are also located in Butler. [Id., p. 1]. Seaspan rents cabins and owns and operates a campground adjacent to Hank's Dock.*fn1 [Id.]. In April 1998, Hank's Dock obtained a disaster relief loan from the United States Small Business Administration [hereinafter "SBA note"] for up to $876,600.00. [RA 7, p. 3; RA 8, p. 4]. In August 2002, Capital Crossing Bank [Capital] purchased the SBA note. [RA 7, p. 4; RA 8, p. 5, fn. 2]. And, in March 2004, Interim became a secured creditor of the debtors when it purchased the SBA note from Capital. [RA 7, pp. 5-6; RA 8, p. 5, fn. 3]. Interim's claim is $822,546.60. [RA 7, p. 1; RA 24, p. 41].
Interim raises two issues on appeal. First, it claims the bankruptcy judge erred in setting in the Plan the interest rate on Interim's claim at 4% per year over 24 years. Instead, Interim asks this court to increase its interest rate to the rate suggested by its witness, Bob Bryant: 9.69% per year. [RA 22 p. 174]. And, second, Interim contends the bankruptcy judge erred in finding that the debtors' Plan did not unfairly discriminate against Interim. Interim argues that it was unfairly discriminated against because the Plan provides higher rates of interest and more favorable repayment terms to the debtors' two other secured creditors.
On appeal, findings of fact by the bankruptcy court will not be set aside by this court unless clearly erroneous. Fed. R. Bankr. P. 8013. This court reviews the bankruptcy court's conclusions of law de novo. In re Morehead, 249 F.3d 445, 447 (6th Cir. 2001).
Interim first complains that the bankruptcy court set the Plan interest rate on its claim at 4% per year to be paid over 24 years. As stated in the confirmed Plan:
The Interim Capital Restructured Debt will: (a) bear interest at a rate of four percent (4%) per annum, and (b) be payable in (i) payments of $2,700 each commencing on the 15th day of the month following the Effective Date*fn2 and on the 15th day of each month thereafter through August 15, 2007, and (ii) 287 equal installments of principal and interest in the amount computed on the then outstanding principal balance commencing on September 15, 2007 through July 15, 2030, and (iii) a 288th installment of all remaining principal and interest due on August 15, 2031. [RA 24, p. 42].
According to the bankruptcy court, the "most appropriate [interest] rate" to be applied by bankruptcy courts "is the current market rate for similar loans at the time the new loan is made," language similar to the holding of Memphis Bank & Trust Co. v. Whitman, 692 F.2d 427, 431 (6th Cir. 1982). [RA 22, pp. 243-44].
The court then noted that it had no evidence before it of "what the current rate of interest is for similar . . . disaster relief loans." [Id., p. 244]. Instead, only evidence before the court was of the current contract loan interest rate of 4%. [Id.]. The court also ruled, in the alternative, that In re Colgrove (Cardinal Federal Savings and Loan Association v. Colegrove), 771 F.2d 119 (6th Cir. 1985), dictated a result that "the market rate for an oversecured loan is limited to a cap of the contract rate, which in this case is four percent. To hold otherwise would give the secured creditor a windfall, to the detriment of the debtor." [Id.].
Pursuant to 11 U.S.C. § 506 (b), an oversecured creditor*fn3 has the right:
[t]o the extent that an allowed secured claim is secured by property the value of which . . . is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs or charges provided for under the agreement under which such claim arose.
Neither the statute itself nor the United States Supreme Court has directly addressed how the rate of interest should be determined in a Chapter 11 bankruptcy case. In re American Homepatient, Inc., 420 F.3d 559 (6th Cir. 2005), and Till v. SCS Credit Corporation, 541 U.S. 465 (2004), are instructive, however, American Homepatient dictates that a bankruptcy court deciding upon a interest rate in a Chapter 11 case should apply "the market rate" of interest "where there exists an efficient market." 420 F.3d at 568. And, when "no efficient market exists for a Chapter 11 debtor, then the bankruptcy court should employ the formula approach endorsed by the Till plurality." Id. In Till, the United States Supreme Court held that the formula approach--which requires the adjustment of the prime national interest rate for the risk of nonpayment--was the appropriate method for determining the adequate interest rate on a Chapter 13 cram down loan. 541 U.S. at 479-80.
Although American Homepatient was decided almost three months after the bankruptcy court's decision in this case, the bankruptcy court's rationale closely mirrors the framework set out by the Sixth Circuit. The bankruptcy court first stated that the interest rate should be "the current market rate for similar loans at the time the new loan is made," similar to the American Homepatient court's holding that "the market rate should be applied in Chapter 11 cases." 420 F.3d at 568. [RA 22, pp. 243-44]. The bankruptcy court then noted that Interim had the burden of proof to provide evidence of the market rate for disaster loans, pursuant to Till. [RA 22, p. 244]. And, Interim had not satisfied that burden as the only expert who testified regarding market rates "indicated that he had never done a disaster relief loan or never been involved in a disaster relief loan although he did say that it was a favored interest rate." [Id.]. The only evidence, then, the bankruptcy ...