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three years' accrued interest, which would total $2.9 million. In D&F Construction, however, the Fifth Circuit held that while negative amortization could possibly provide present value under some circumstances, it could not be deemed fair and equitable when based upon speculation that the present condition of the Texas real estate market will improve substantially
Not surprisingly, some bankruptcy courts have approved negative amortization payment plans, while others have not, but often while recognizing that negative amortization could be appropriate on other facts. Probably the most severe denouncement of negative amortization is in McComb's Properties. The Ninth Circuit subsequently held 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."
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. 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). 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,
