The Bankruptcy Appellate Panel (BAP) for the Sixth Circuit Federal Court of Appeals recently decided a case involving five Kentucky limited partnerships (the Debtors) which were placed in a jointly-administered Chapter 11 case. In the appeal, the debtors took issue with including the value of LIHTCs in the bank’s appraised value of the real property. In the latest ruling, the BAP held that the value of the remaining LIHTCs should be included in the value of the bank’s secured interest in the projects. More specifically, the court ruled that the bank had a preferred security interest in the real properties which could not be separated from the delivery and valuation of the tax credits. In addition, the “debtors chose to ignore the fact that the remaining tax credits impact the value of the property, are owned by the debtors and that any rights/ benefits/burdens of the remaining tax credits which inure to the limited partners do so only as a result of their ownership/partnership interest in the debtors. If the properties are sold, all proceeds of a sale belong to the respective debtor with any benefit of the remaining tax credits flowing through the new entity to the owners of that new entity.”
Click here to read decision from BAP.
Click here to read Nixon Peabody’s assessment of the case.
Click here to read Pepper Hamilton’s assessment of the case.
