Should Roll-Ups of Senior Secured Debt Affect the Determination of a Junior Lienholder's Secured Claim?


Summary

This article discusses whether a roll-up of prepetition senior secured debt should affect the value of a junior lienholder's prepetition secured claim. Let's start with the easy part. What is a roll-up? A roll-up involves the conversion of prepetition secured debt into post-petition secured debt, typically through the "deemed" use of DIP loan proceeds to repay the prepetition debt. Lenders seek roll-ups because, among other things, they preclude possible cramdown of the rolled-up prepetition debt under Section 1129(b) of the Bankruptcy Code. But, roll-ups can have other consequences, including potentially impacting the value of non-rolled-up junior secured debt.