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Cramdown (US)
Practical Law Glossary Item 8-382-3369 (Approx. 3 pages)
Glossary
Cramdown (US)
Also known as crammed down. In the context of bankruptcy, the mechanism by which a court may confirm a Chapter 11 plan of reorganization over the objections of a dissenting class of creditors, if the plan:
- Has been accepted by at least one impaired class.
- Does not discriminate unfairly. This generally means that similar claims or interests are treated similarly.
- Is fair and equitable:
- with respect to secured creditors, this generally requires that the secured creditor receive at least the value of their collateral;
- with respect to unsecured creditors, this generally requires satisfaction of the absolute priority rule.
In the context of mortgage modifications in connection with the government bailout programs, proposed legislation allowing judges to modify the terms of mortgages for borrowers in bankruptcy court.
In the context of joint ventures, a remedy for a partner's failure to make a mandatory capital contribution that allows the nondefaulting partner to contribute the unfunded capital to the joint venture and dilute the defaulting partner's percentage interest. The cramdown is often at a negotiated punitive rate, typically from 1.25 to 2.5 times. The nondefaulting partner's percentage interest is correspondingly increased. Also referred to as dilution.