December 10, 2012 Articles

Cram-Down Interest Rates: What Till Tells Us (or Not)

A used pickup truck may provide guidance for a multi-billion-dollar commercial mortgage portfolio.

By Jeffrey L. Baliban

The last two installments in this series focused on discount rate determination in assessing the solvency of a business. The dscount rate is applied to reduce forecast future cash flows to their present value and is designed to account for both the time value of money and a hypothetical buyer’s risk that actual cash flows may be different from the forecast. Cram-down interest rates present another circumstance where a series of future cash flows must be reduced to their present value, and an appropriate discount or interest rate must be determined and applied.

The decision to which most courts currently default on cram-down interest rates is Till v. SCS Credit Corp., 541 U.S. 465 (2004). This matter related to the purchase of a used truck by petitioners Lee and Amy Till in October 1998. The cost to the Tills was $6,725.75 ($6,395 for the truck and $330.75 in fees and taxes). They put $300 down and financed the remainder under a retail installment contract that was ultimately assigned to SCS Credit Corp. Within about a year, the petitioners were in default and filed a joint petition for relief under Chapter 13 of the U.S. Bankruptcy Code.

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