Ultra Petroleum Corp. v. Ad Hoc Comm. of OpCo Unsecured Creditors (In re Ultra Petroleum Corp.)

• Decision Date: 14 October 2022
• Docket Number: 21-20008
• Parties: In re: Ultra Petroleum Corporation; Keystone Gas Gathering, L.L.C.; Ultra Resources, Incorporated; Ultra Wyoming, Incorporated; Ultra Wyoming LGS, L.L.C.; UP Energy Corporation; UPL Pinedale, L.L.C.; UPL Three Rivers Holdings, L.L.C.; Debtors, v. Ad Hoc Committee of OpCo Unsecured Creditors; OpCo Noteholders; Allstate Life Insurance Company; Allstate Life Insurance Company of New York, Appellees. Ultra Petroleum Corporation; Keystone Gas Gathering, L.L.C.; Ultra Resources, Incorporated; Ultra Wyoming, Incorporated; Ultra Wyoming LGS, L.L.C.; UP Energy Corporation; UPL Pinedale, L.L.C.; UPL Three Rivers Holdings, L.L.C., Appellants,
• Court: U.S. Court of Appeals — Fifth Circuit

In re: Ultra Petroleum Corporation; Keystone Gas Gathering, L.L.C.; Ultra Resources, Incorporated; Ultra Wyoming, Incorporated; Ultra Wyoming LGS, L.L.C.; UP Energy Corporation; UPL Pinedale, L.L.C.; UPL Three Rivers Holdings, L.L.C.; Debtors,

Ultra Petroleum Corporation; Keystone Gas Gathering, L.L.C.; Ultra Resources, Incorporated; Ultra Wyoming, Incorporated; Ultra Wyoming LGS, L.L.C.; UP Energy Corporation; UPL Pinedale, L.L.C.; UPL Three Rivers Holdings, L.L.C., Appellants,
v.
Ad Hoc Committee of OpCo Unsecured Creditors; OpCo Noteholders; Allstate Life Insurance Company; Allstate Life Insurance Company of New York, Appellees.

No. 21-20008

United States Court of Appeals, Fifth Circuit

October 14, 2022

Appeal from the United States Bankruptcy Court for the Southern District of Texas USBC No. 4:16-MC-3064

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Before JOLLY, ELROD, and OLDHAM, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

Bankruptcy is ordinarily for the insolvent. The Bankruptcy Code enables economically viable businesses in financial distress to restructure and shed some of the debt burden that crippled them. Sometimes, however, initially insolvent debtors regain solvency during extended bankruptcy proceedings. This is one such case. Ultra Petroleum Corp. (HoldCo) and its affiliates, including its subsidiary Ultra Resources, Inc. (OpCo), entered Chapter 11 bankruptcy deep in the hole. But during the bankruptcy process, these debtors (collectively, Ultra) hit it big-as natural gas prices soared, they became supremely solvent. What, then, of their debt and interest must they (re)pay their creditors now that they can?

Ultra proposed a $2.5 billion bankruptcy plan. It provided that OpCo's creditors would be paid-in full and in cash-their outstanding principal and all interest that had accrued before bankruptcy, plus interest on both at the Federal Judgment Rate for the duration of the bankruptcy proceeding. Two groups of creditors complain that the plan falls some $387 million short: They contend that they are entitled to a "Make-Whole Amount," a lump sum calculated to give them the present value of the interest payments they would have received but for Ultra's bankruptcy. These creditors further claim that they are owed post-petition interest at a contractually specified rate that is materially higher than the Federal Judgment Rate.

This case asks us to decide: first, whether the Bankruptcy Code precludes the creditors' claims for the Make-Whole Amount; second, even if it does, whether the traditional solvent-debtor exception applies; and third, whether post-judgment interest is to be calculated at the contractual or Federal Judgment rate. We hold that the Bankruptcy Code disallows the Make-Whole Amount as the economic equivalent of unmatured interest. But because Congress has not clearly abrogated the solvent-debtor exception, we

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hold that it applies to this case. And the solvent-debtor exception demands that Ultra pay what it promised now that it is financially capable. We likewise hold that, given Ultra's solvency, post-petition interest is to be calculated according to the agreed-upon contractual rate. Thus, we AFFIRM.

I.

Ultra is a family of natural gas exploration and production companies. In 2014 and 2015, a sharp decline in natural gas prices drove Ultra to insolvency and thence to the protection of Chapter 11 bankruptcy in early 2016. During the bankruptcy proceedings, the same volatile commodity prices that hurled Ultra into insolvency propelled the debtors back into solvency. Indeed, Ultra became "massively solvent."

Ultra proposed a plan that would pay-in full and in cash-all unsecured claims, including those of its noteholders and revolving credit facility creditors (collectively, Creditors).^[1] Ultra would thus pay Creditors' entire outstanding principal along with all accrued pre-petition interest at the contractual rate, plus post-petition interest at the Federal Judgment Rate, as specified at 28 U.S.C. § 1961(a).^[2] In Ultra's view, the plan paid Creditors fully for every claim that the Bankruptcy Code allowed. For this reason, Ultra classified these Creditors as "unimpaired" under 11 U.S.C.

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§§ 1123(a)(2), 1124. And given their status as "unimpaired," Creditors were thus "conclusively presumed to have accepted the plan" per § 1126(f). In other words, they had no right to vote on it.

Creditors objected. They contended that the plan did impair them because it did not allow for claims stemming from two contractual provisions in their debt instruments-a shortfall of some $387 million. Not so, countered Ultra-those two provisions simply did not give rise to allowable claims under the Bankruptcy Code.

The parties stipulated that this dispute could be resolved after plan confirmation. Ultra created a $400 million reserve to cover the alleged shortfall, and the bankruptcy court confirmed the plan. The bankruptcy court then addressed Creditors' "impaired" status vis-a-vis the disputed amounts, concluding that Creditors remained impaired unless they were paid the full amount permitted under applicable non-bankruptcy law. In re Ultra Petroleum Corp., 575 B.R. 361, 366-75 (Bankr.S.D.Tex. 2017). Ultra appealed directly to this court.

We reversed. In re Ultra Petroleum Corp., 943 F.3d 758 (5th Cir. 2019). We held that "[w]here a plan refuses to pay funds disallowed by the Code, the Code-not the plan-is doing the impairing." Id. at 765. The issue of impairment thus set aside, the only question remaining was whether Creditors were, in fact, entitled to the disputed claims under the Bankruptcy Code's disallowance provisions. On this score, we remanded to the bankruptcy court to render a decision in the first instance. Id. at 765-66.

On remand, the bankruptcy court faced the dispositive question of whether Creditors' disputed claims were indeed disallowed under the Bankruptcy Code. Creditors' disputed claims stemmed from two OpCo debt instruments:

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1. OpCo Notes issued under a Master Note Purchase Agreement (MNPA) (totaling $1.46 billion in principal); and

2. a Revolving Credit Facility (RCF) ($999 million in principal).

Creditors claimed a "Make-Whole Amount" under the MNPA, and under both the MNPA and the RCF, they claimed interest calculated according to a contractually specified "default rate" on all amounts due and payable at the time that Ultra filed for bankruptcy.

Under both the MNPA and the RCF, the occurrence of any contractually enumerated "Event of Default" renders any outstanding principal immediately due and payable. Under the MNPA, such an Event also triggers the requirement that OpCo pay Creditors an additional MakeWhole Amount. The Make-Whole Amount, stripped of the contract's financial jargon, is simply the value of all future unmatured interest payments on the Notes, expressed in today's dollars.^[3]

Among the Events of Default that trigger principal acceleration and the Make-Whole provision is the filing of a petition for bankruptcy. Thus, the moment that Ultra filed, the remaining principal on both debt instruments became due, and Ultra contractually owed the Noteholders the Make-Whole Amount-a sum clocking in around $201 million.

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On top of this, both the MNPA and the RCF specified a hefty contractual "default rate" of interest to accrue on the accelerated principal and the Make-Whole Amount for so long as these amounts remained unpaid.^[4] Since bankruptcy's automatic stay prevents payment, this defaultrate interest effectively accrued until plan confirmation. Creditors accordingly sought to recover $106 million in interest on the accelerated principal and $14 million in interest on the Make-Whole Amount.

Ultra objected to both the Make-Whole Amount and the default-rate interest, which together totaled some $387 million. In its view, the MakeWhole Amount was either an unenforceable penalty under governing New York law or else impermissible "unmatured interest," both of which are disallowed by the Bankruptcy Code. Ultra further urged that the interest accrued at the contractual default rate far exceeded the appropriate amount of interest, which, it contended, should be calculated at the Code's "legal rate" of post-petition interest: namely, the Federal Judgment Rate.^[5]

On remand from this court to decide in the first instance whether these disputed amounts were allowable under the Bankruptcy Code (and, therefore, necessary for Creditors to be deemed unimpaired), the bankruptcy court ruled in Creditors' favor. In re Ultra Petroleum Corp., 624 B.R. 178, 191-95, 202-04 (Bankr.S.D.Tex. 2020). The Make-Whole Amount, it held, was enforceable under New York law, and it constituted neither "unmatured interest" nor its "economic equivalent" for the purpose of § 502(b)(2). Id. at 191-95. As to post-petition interest, the bankruptcy court held that the

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historically rooted "solvent-debtor exception" to the Bankruptcy Code's prohibition of unmatured interest entitled Creditors to such interest at the contractual default rate rather than the lower Federal Judgment Rate. Id. at 195-204. All told, the bankruptcy court's ruling would require Ultra to pay Creditors the entire $387 million that they sought. Ultra again appealed timely and directly to this court.^[6]

II.

This appeal presents pure questions of bankruptcy law, which we review de novo. Ultra, 943 F.3d at 762.

We begin with the Make-Whole Amount. Because we need only address the solvent-debtor exception to the extent that the Bankruptcy Code would disallow the Make-Whole Amount, we first consider whether the Make-Whole Amount constitutes disallowed unmatured interest under 11 U.S.C. § 502(b)(2). Concluding that it does, we then consider whether the solvent-debtor exception survived the enactment of the Bankruptcy Code in 1978 and thus whether it still applies to suspend the Code's disallowance of the Make-Whole Amount as unmatured interest. Because the exception does indeed...