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that "the McCombs court offered no reason why negative amortization should be deemed impermissible," and noted that "Our research has discovered no other court which has accepted the reasoning of the McCombs court."327
The second cram down alternative, set forth in § 1129(b)(2)(A)(ii), is sale of the collateral subject to § 363(k), free and clear of the lien, with the lien to attach to the proceeds and the creditor to receive deferred cash payments or the "indubitable equivalent," under alternatives (i) or (iii).
Collateral can be sold outside of a plan pursuant to § 363(f). There may be significant differences in selling under a plan. The most important distinction is probably the lack of the requirement of § 363(f)(3) that the sale price exceed the value of the liens unless the secured creditor consents.328 The creditor's right to bid under § 363(k) is the creditor's only protection under a plan, so even over-liened collateral can be sold under a plan, even if it cannot be sold under § 363(f) outside of a plan.
Moreover, because the creditor can credit bid pursuant to § 363(k), specifically made applicable by § 1129(b)(2)(A)(ii), the § 1111(b) election is unnecessary and therefore specifically made unavailable by § 1111(b)(1)(A)(ii).329 Some imaginative debtors have attempted to avoid both the § 1111(b) election and the credit bid by arguing that their plans which provided for a sale should be confirmed under the first cram down alternative, § 1129(b)(2)(A)(i), which does not contain the specific reference to § 363(k) found in the specific sale alternative (ii). At least one court has accepted this argument,330 but the attempt has also been rejected by courts holding either that the sale exception in § 1111(b)(1)(A)(ii) applies only to sales where the creditor may credit bid, or that undersecured creditors must be
of deferred principal payments." The court went on to say that although an adjustment could be made by increasing the interest rate, "this was not the intent of Congress when it incorporated the present value concept into the Code." In fact, present value can be achieved through negative amortization. A classic example is the U.S. savings bond that pays no current interest and pays in a balloon payment more than the purchase price.
327
Great Western Bank v. Sierra Woods Group, 953 F.2d 1174 (9th Cir. 1992).
328
This provision may be an anomaly, because even outside of a plan the secured creditor is adequately protected by his right to bid provided in § 363(k).
329 Matter of Tampa Bay Associates, Ltd., 864 F.2d 47, 50 (5th Cir. 1989)(holding that § 1111(b) election is also unavailable after foreclosure, because creditor was entitled to credit bid at foreclosure sale).
330
In re Broad Associates, Ltd., 125 B.R. 707 (Bankr. D. Conn. 1991).
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