On Jan. 19, 2019, the U.S. Court of Appeals for the Fifth Circuit held that contractual make-whole damages claims arising out of a bankruptcy filing should be characterized as claims for “unmatured interest” within the meaning of §502(b)(2) of the Bankruptcy Code and therefore disallowed. Ultra Petroleum et al. v. Ad Hoc Comm. of Unsecured Creditors of Ultra Res. (In re Ultra Petroleum), 913 F.3d 533 (5th Cir. 2019) (Ultra Petroleum). Facing the unusual fact of a solvent debtor, the court also held that claims for post-petition interest on unsecured debts in a solvent case are unlikely to be calculated with reference to contractual default rates, though it ultimately remanded to the bankruptcy court for such determination.

In Ultra Petroleum, the question presented was whether a class of claims was unimpaired if such class’s contractual rights to make-whole damages were not honored in a reorganization plan. The reasoning distinguished between “plan impairment” and “Code impairment.” The court affirmed that a creditor is not impaired by a plan of reorganization when such plan simply incorporates the Bankruptcy Code’s disallowance provisions because the Bankruptcy Code and not the plan is doing the impairment. The plan in question provided a return to equity enhanced by the savings achieved through the plan’s failure to pay the make-whole amount. The determination that the creditor class was nevertheless unimpaired also influenced the analysis of a creditor’s right to post-petition interest in a solvent case. Solvent debtors are unusual but surprisingly the reasoning of the case and its holding on make-whole damages are not limited to that rare circumstance. Indeed, the ruling on make-whole payments should benefit equity and junior classes in Chapter 11 cases commenced in the Fifth Circuit.

Factual Background

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