Appellant US Bank argued that the confirmation of the plan, despite the plan's failure to provide any distributions to holders of subordinated notes issued under an indenture, was not fair and equitable as to the subordinated noteholders. Under the plan, the subordinated noteholders received no recovery while the plan provided for distribution to the second lien noteholders on account of their unsecured deficiency claims. US Bank argued that to be fair and equitable, the plan must treat the claims of the subordinated noteholders on a pari passu basis with second lien noteholder claims based on the indenture's subordination provisions.

Under the 2006 Indenture (Indenture), the Subordinated Notes are "subordinated in right of payment . . . to the prior payment in full of all existing and future Senior Indebtedness of the Company." US Bank argued that the Subordinated Notes should not be subordinated to the Second Lien Notes because the Second Lien Notes were not Senior Indebtedness under the Indenture. The definition of Senior Indebtedness excluded any debt that was:

US Bank argued that the "in any respect" clause referred to both payment and lien subordination. Therefore, because the Second Lien Notes were secured by a junior lien and thus, subject to lien subordination, they could not be Senior Indebtedness under the "in any respect" clause.

The Court disagreed, and held that according to the plain language of the Indenture, the Second Lien Notes were Senior Indebtedness. It focused on the distinction between lien subordination, where the subordinated creditor may not recover from common collateral until the senior creditor is paid in full, and payment subordination, which requires the subordinated creditor to turn over payments from any source until the senior creditor is paid in full. The Court explained that both clauses referred only to payment subordination, and that the "in any respect" clause unambiguously clarified the exclusion of indebtedness subordinated by payment where the debt instrument did not expressly create payment subordination. Therefore, because the Second Lien Notes, which were only subject to lien subordination, constituted Senior Indebtedness under the Indenture, the plan did not violate the "fair and equitable" requirement of section 1129(b) of the Bankruptcy Code, despite its lack of distribution to the holders of the Subordinated Notes.

The Appellants argued that the interest rate should be determined using an "efficient market" approach, under which the cramdown interest rate is based on the interest rate the market would pay on such a loan, in this case measured by "the rates on the exit and bridge financing the [d]ebtors actually obtained." The Court agreed with the debtors who argued that the the formula approach laid out by the US Supreme Court in Till v. SCS Credit Corp. should be applied (see 541 U.S. 465 (2004)). Under the formula approach, the cramdown interest rate is calculated by taking a risk-free (or low risk) base rate and adding a risk premium to reflect the repayment risk unique to that debtor.

Applying the reasoning set out in Till and In re Valenti, (105 F.3d 55 (2d Cir. 1997)), the Court rejected the efficient market approach, which "overcompensates" creditors. It reasoned that the cramdown interest rate is meant "to put the creditor in the same economic position that it would have been in had it received the value of its claim immediately," and "not to put the creditor in the same position that it would have been in had it arranged for a 'new' loan."

Although both Till and Valenti were both decided in the Chapter 13 context, the Court found that the Appellants provided no good reason why the cramdown interest rate calculation should be different in Chapter 11.

The Appellants argued that the bankruptcy court erred in applying the formula approach because it chose to use the seven-year Treasury rate, rather than the national prime rate used by the US Supreme Court in Till, as the base risk-free rate. The Court agreed with the bankruptcy court that Till does not obligate a court to choose the national prime rate as the risk-free base rate, and held that the use of a seven-year Treasury rate is appropriate. The Court also held that the risk premiums chosen by the bankruptcy court were "well within the bounds of reasonableness."

The Court agreed with the debtors and the bankruptcy court that the Appellants were not entitled to a make-whole premium. It explained that a make-whole provision must clearly and unambiguously provide for the right to a make-whole premium after automatic acceleration caused by a bankruptcy filing. In this case, the Court found that the Indenture lacked the specificity required under New York law to allow for payment of a make-whole premium in these circumstances. While the Indenture stated that redemption before October 15, 2015 triggers a make-whole payment, the Court held that this was not specific enough to meet the clear and unambiguous requirement, which it suggested could be satisfied by language requiring a make-whole payment if the debt was repaid before the original maturity date.