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the terms of the loan documents, such as deleting requirements for mortgage insurance and surplus cash, which one court found to satisfy indubitable equivalence.350 Of course such a plan provision probably also satisfies § 1129(b)(2)(A)(i) because the creditor retains its lien and receives the present value of its debt.351
V. CRAM DOWN OF UNSECURED CLAIMS AND EQUITY
As with secured claims, the cram down requirements for unsecured claims are that the plan "does not discriminate unfairly, and is fair and equitable." § 1129(b)(1). Unfair discrimination has been dealt with above. The "fair and equitable" requirement refers to the absolute priority rule that Justice Douglas held in Case v. Los Angeles Lumber352 to be inherent in the term "fair and equitable." The Code has modified it, however, to apply only when an entire class, rather than a single creditor, rejects the plan. Section 1129(b)(2)(B) is the Code's attempt at partially codifying certain treatments of unsecured claims that satisfy the absolute priority rule.
The absolute priority rule requires that an objecting class of unsecured claims receive the full present value of their claims, or else no junior class may retain any property under the plan. § 1129(b)(2) (B).
In Armstrong, the Third Circuit clarified that the absolute priority rule applies, and is violated, when a class of impaired creditors that is not paid in full objects to a distribution to a junior class, even if that distribution allegedly derives from another, co-equal creditor class
350 In re Capital West Investors, 178 B.R. 824, 829 (Bankr. N.D. Cal. 1995), applying the standards adopted by the Bankruptcy Appellate Panel in In re Pine Mountain, Ltd.., 80 B.R. 171, 174-75 (9th Cir. BAP 1987), holding that the "indubitable equivalent exists where it is unlikely that a claim would even become even partially unsecured, where the plan is not speculative and provided safeguards and fair interest rates."
351
In re Capital West Investors, 178 B.R. 824, 828 (Bankr. N.D. Cal. 1995)
352
Case v. Los Angeles Lumber Products Co., 308 U.S. 106, 60 S. Ct. 1 (1939). In enacting the first general corporate reorganization statute, § 77B, Congress did not codify the absolute priority rule but required plans to be "fair and equitable." In Los Angeles Lumber, Justice Douglas held this term incorporated the absolute priority rule, which he said had been earlier announced in the equity receivership cases of Kansas City Terminal R. Co. v. Central Union Trust Co., 271 U.S. 445, 46 S. Ct. 549 (1926) and Northern Pacific Railway Co. v. Boyd, 228 U.S. 482, 33 S. Ct. 827 (1913), even though many commentators at the time felt those cases may also have incorporated the rival "relative priority rule."
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