Glossary

Cramdown

Also known as: Cram-Down

Confirmation of a Chapter 11 plan of reorganization over the objection of one or more impaired creditor classes, provided the plan does not discriminate unfairly and is fair and equitable as to each dissenting class — for a secured CRE mortgage lender, generally requiring that it retain its lien and receive deferred cash payments with a present value at least equal to the current value of its collateral.

For a secured lender, cramdown under Bankruptcy Code Section 1129(b) allows the debtor to impose a restructured note over the lender's objection — stretching maturity and adjusting the interest rate, using a market or formula rate reflecting current risk that is frequently the subject of dueling expert testimony — so long as the lender receives the indubitable equivalent of its secured claim, generally understood as the current value of its collateral rather than the loan's original face amount. Any gap between the debt and that current collateral value becomes a general unsecured deficiency claim, typically recovering only a fraction of its face value, which is exactly why an accurate, contested valuation of the collateral is so often the central battleground of a CRE cramdown dispute. A related, CRE-specific wrinkle is the Section 1111(b) election, which allows an undersecured mortgage lender to forgo that low-recovery unsecured deficiency claim and instead insist on retaining a lien for the full face amount of its debt, changing the cramdown math significantly; lenders facing a likely unfavorable cramdown often prefer to negotiate a consensual plan, or to seek relief from stay and foreclose outside bankruptcy, rather than litigate a contested cramdown to conclusion.