Secured creditors and unsecured creditors?

[john john]

What is the difference between secured creditors and unsecured creditors? And what makes them different and who decides.

 

[BoeingBoy]

In general terms, secured creditors have collateral backing their claims so stand to lose nothing during BK - they either get their money or the assest backing their claim. Unsecured creditors have nothing backing their claim so will get only what the approved POR gives them - generally cents on the dollar owed them (although there are exceptions) and usually in "new" stock issued after BK emergence (as most of the unsecured creditors got when US emerged).

As I said in the other thread, when the debtor (DL, in this case) seeks approval for a POR the secured creditors don't have to be given a vote - the BL law presumes they're in favor. It makes sense since they get their money or assets no matter what happens, including liquidation.

The unsecured creditors are different depending on what class they're in. If any will get nothing under the terms of the POR, they're presumed to be against the plan - no vote required.

It's those in the middle - not getting 100% of their claim but getting something, that must be allowed to vote. After that, it's just a matter of counting the votes.

It takes two things for the POR to be approved. 50%+1 of the voting creditors (including those whose vote is "presumed") must vote in favor, and creditors holding at least 2/3 of the total dollar amount of claims must vote in favor.

Since about 50% of the claims against DL are secured, DL need 1/6 of the total dollar value of claims and enough individual creditors to make 50%+1 to vote for their POR for it to be approved.

Jim

 

[RowUnderDCA]

would that be 1/3 or 2/6 of the creditors bb?

I was confused by this too with the news that boeing is the chair of the creditors committee. It's interesting that secured creditors 'get' a vote and the vote is presumed to be yes. I thought that they were just ignored, other than the judge reviewing the disposition of the agreements.

 

[BoeingBoy]

would that be 1/3 or 2/6 of the creditors bb?

I think you're talking about what DL would need to reach the "2/3 of the amount of claims" threshold. If so, from what I've seen im the media, the secured creditors represent about 1/2 the claims and will be presumed to be in favor of DL's POR. If the numbers I've seen are right, then DL effectively already has 3/6 of the claims value locked up and needs 4/6 to meet the 2/3 needed - so they need an additional 1/6 from the unsecured creditors.

The harder threshold for DL to meet will probably be the "50% + 1" of the individual claim holders, since far more claims are unsecured than secured - lots and lots of small claims ranging from a few dollars to a few thousand dollars. What's not clear is how many claimants there will ultimately be. Just as in the US bankruptcy, there appears to be a pretty brisk business with firms that specialize in buying claims, expecially smaller ones. The other uncertainty is how many of the small claimholders will even vote - the "50% + 1" applies to votes cast as I read the law.

It's interesting that secured creditors 'get' a vote and the vote is presumed to be yes. I thought that they were just ignored, other than the judge reviewing the disposition of the agreements.

In effect, the secured creditors can be ignored (presumed to favor the debtor's plan). I guess it makes sense from the standpoint of them having no interest in the outcome - they theoretically lose nothing no matter what the outcome.

One thing I've done is oversimplify somewhat. What the BK law says is that for each class of creditors, holders of over 2/3 of the claim value and over 1/2 of the claim holders must vote in favor of the plan for that class to be in favor of the plan. In a big DK like DL, there are 10-12 separate companies with each potentially having 10 or so classes of creditors (within the 2 broad catagories of secured/unsecured). The law makes it clear what is needed for a class of creditors to accept or reject the plan, but I haven't found how the class results are combined. So I've just been assuming that the "over 2/3 and over 1/2" applies to the entire creditor group.

Jim

 

[Gilding the Lily]

I think you're talking about what DL would need to reach the "2/3 of the amount of claims" threshold. If so, from what I've seen im the media, the secured creditors represent about 1/2 the claims and will be presumed to be in favor of DL's POR. If the numbers I've seen are right, then DL effectively already has 3/6 of the claims value locked up and needs 4/6 to meet the 2/3 needed - so they need an additional 1/6 from the unsecured creditors.


One thing I've done is oversimplify somewhat. What the BK law says is that for each class of creditors, holders of over 2/3 of the claim value and over 1/2 of the claim holders must vote in favor of the plan for that class to be in favor of the plan. In a big DK like DL, there are 10-12 separate companies with each potentially having 10 or so classes of creditors (within the 2 broad catagories of secured/unsecured). The law makes it clear what is needed for a class of creditors to accept or reject the plan, but I haven't found how the class results are combined. So I've just been assuming that the "over 2/3 and over 1/2" applies to the entire creditor group.

Jim

You are correct in saying that a class accepts the plan if it is accepted by impaired creditors holding at least two-thirds in amount and a majority in number of the claims of the class (of those that actually vote).

Generally speaking, usually each secured creditor (unimpaired class) is in its own class. But like you stated earlier, they are presumed to accept the plan and not given a vote unless they could be materially affected.

The unsecured creditors are usually lumped together into the unsecured class (preferences not included).

Thus, for the plan to be accepted, each class of impaired claims must obtain the 2/3 in amount and majority in number requisite. If one of those classes do not obtain the requisite amount of votes, then the plan is not accepted. At that point, the plan proponent may attempt a "cram-down".