Bankruptcy courts have substantial discretion to modify the terms of loan agreements through reorganization plans.1 On Dec. 30, 2011, Judge Eileen Hollowell of the U.S. Bankruptcy Court of Arizona exercised this discretion and approved a controversial reorganization plan (the Plan) for Transwest Resort Properties and its affiliates (collectively Transwest).2 The Plan makes significant modifications to many of the material provisions in the loan documents of the senior secured claimant, JPMCC 2007 C-1 Grasslawn Lodging (JPMCC).3
Specifically, the Plan extended the remaining term of the loan from 2017 to 2033, increased the principal amount of the loan from approximately $200 million to $240 million, and cut the interest rate of the loan from 5.625 percent to 5.25 percent.4 The Transwest resorts, which constituted JPMCC’s collateral under the loan documents, were valued at $92.5 million and Transwest’s indebtedness amounted to approximately $247 million.5 JPMCC objected to the proposed Plan because of its extreme modifications to the original loan documents.6
