Seventh Circuit Vindicates Secured Lenders' Right to Full Payment

The U.S. Court of Appeals for the Seventh Circuit held on May 5, 2009, that two secured lenders were fully secured, “entitled to a full recovery” from the debtor (“UAL”) despite the bankruptcy court's improper valuation of the collateral (improved airport terminal space) securing the lenders' underlying $60 million loan. In re United Air Lines, Inc., ___ F.3d ___, 2009 U.S. App. LEXIS 9648 (7th Cir. 5/5/09) (Easterbrook, Ch. J.). The lower courts had valued the lenders' collateral at $35 million, leaving them with a $25 million unsecured claim. According to the Seventh Circuit, the bankruptcy and district courts had not only ignored critical evidence showing comparable terminal space with a higher value, but the bankruptcy court had also used an improper discount rate when valuing the space rentals over the term of the loan. In the court's words, “[r]eal prices are much more informative than lawyers' talk.” Id. at 13.