hard · Corporate Credit Analysis
A company files Chapter 11. A holder of a $100M senior secured term loan is undersecured: the collateral is worth $70M. The plan takes 18 months to confirm. The loan's contract rate is 8%, and the company is solvent at the operating level (generating cash). Under the absolute priority framework as interpreted in *United Savings Ass'n v.
Timbers of Inwood Forest*, what is this creditor entitled to receive as post-petition interest (pendency interest) during the case?
- No post-petition interest at all, because the creditor is undersecured and §506(b) limits such interest to oversecured creditors
- Post-petition interest of 8% on the full $100M claim, since the company is generating cash and is operationally solvent
- Post-petition interest of 8% on the $70M secured portion only, payable currently as adequate protection for the collateral
- Compensation only for any decline in the collateral's value over the case, not interest on the secured portion, even though the unsecured deficiency accrues no interest
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