On October 14, 2022, the U.S. Court of Appeals for the Fifth Circuit affirmed the decision of the U.S. Bankruptcy Court for the Southern District of Texas (Isgur, J.) allowing a claim against a solvent debtor for a make-whole premium and post-default interest totaling approximately $387 million. Ultra Petroleum Corp., et al. v. Ad Hoc Committee of OpCo Unsecured Creditors, et al. (In re Ultra Petroleum Corp.), 2022 U.S. App. LEXIS 28604 (5th Cir. October 14, 2022). 

The Fifth Circuit held that the make-whole premium at issue constitutes unmatured interest. Although unmatured interest would normally be disallowed under section 502(b)(2) of the Bankruptcy Code, the Fifth Circuit nevertheless allowed the make-whole premium under the solvent-debtor exception, stating: “In the ordinary case, the Bankruptcy Code would disallow a make-whole amount that functionally equates to unmatured interest. But this is not the ordinary case. Ultra became ultra solvent. And when a debtor is able to pay its valid contractual debts, traditional doctrine says it should—bankruptcy rules notwithstanding.”

Regarding post-petition interest, the Fifth Circuit held that, even if the term “the legal rate” (as used in section 726(a)(5) of the Bankruptcy Code) means the federal judgment rate, nothing in the Bankruptcy Code prohibits “unimpaired creditors from receiving default-rate post-petition interest in excess of the federal judgment rate in solvent-debtor Chapter 11 cases.” Noting that unimpaired creditors’ legal, equitable, and specified rates of interest must remain unaltered under section 1124(1) of the Bankruptcy Code, the Fifth Circuit allowed post-petition interest at the default rate.

The Fifth Circuit’s opinion in Ultra Petroleum is one of a number of decisions from other U.S. Circuit Courts of Appeal and Bankruptcy Courts concerning claims for make-whole premiums and post-petition interest at the contract rate. Although each case is nuanced in its own way (and we encourage readers to review the full opinions to appreciate those nuances), the chart below summarizes the disparate conclusions reached, so far, concerning claims for make-whole premiums and post-petition interest at the contract rate.

The post was also authored by Mark Eckard.