Available at: http://repository.law.miami.edu/umblr/vol10/iss2/2.
Too many bankruptcy judges doing "Till in chapter 11 'analysis'"adopt what I have called elsewhere the “loan market as Santa Claus” paradigm. The borrower comes in with a wish list in its chapter 11 plan. It wants to stay highly leveraged while paying debt service in crumb-sized increments for a really long time. Heads equity wins, tails lenders lose. Every expert agrees: “there ain’t nobody in their right mind who would make that loan on a par basis.” So, the bankruptcy judge sagely frowns and says, “well, that must mean the loan market is not efficient! Borrower, there are no dissatisfied customers in my court! Go ahead and give that lender prime plus 3 on your wildly overleveraged cash flow! That’s fair and equitable!”)
Whether a particular capital market is efficient or not is analytically irrelevant to the application of section 1129(b)(2) and courts should kick its ivory tower butt out of Code jurisprudence altogether, because such academic, costly and overwrought inquiries are inconsistent with the goal of efficiently administering bankruptcy cases themselves. A further irony: making bankruptcy judges investigate "credit market efficiency' makes them less efficient.