# Official Committee of Unsecured Creditors v. UMB Bank, N.A. (In re Residential Capital, LLC)

> United States Bankruptcy Court, S.D. New York · November 15, 2013 · 501 B.R. 549

URL: https://www.frixlaw.com/law-library/cases/8496518

## Case

- **Full name:** IN RE: RESIDENTIAL CAPITAL, LLC, Debtors. Official Committee of Unsecured Creditors, on behalf of the estates of the Debtors v. UMB Bank, N.A., as successor indenture trustee under that certain Indenture, dated as of June 6, 2008 and Wells Fargo Bank, N.A., third priority collateral agent and collateral control agent under that certain Amended and Restated Third Priority Pledge and Security Agreement and Irrevocable Proxy, dated as of December 30, 2009, Defendants Residential Capital, LLC v. UMB BANK, N.A., as successor indenture trustee under that certain Indenture, dated as of June 6, 2008 and Wells Fargo Bank, N.A., third priority collateral agent and collateral control agent under that certain Amended and Restated Third Priority Pledge and Security Agreement and Irrevocable Proxy, dated as of December 30, 2009
- **Court:** United States Bankruptcy Court, S.D. New York
- **Decided:** November 15, 2013
- **Citations:** 501 B.R. 549
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Glenn
- **Judges:** Glenn
- **Cited by:** 16 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/8496518

## How later opinions describe it (automated extraction)

- concluding that secured creditors can aggregate collateral across multiple debtor entities for purposes of establishing whether they are oversecured under Bankruptcy Code section 506(b) and noting that a contrary rule “defies common sense”
- finding that "fair market value rather than foreclosure value applies” where evidence at trial confirmed that the parties "always intended to market and sell the properties as a going concern”
- holding that the collateral should be valued "based on the fair market value of the collateral in the hands of the Debtors”
- applying Rash’s ruling to adopt a going-concern valuation method to calculate an adequate protection claim based on diminution in value due to consensual use of collateral

## Opinion text

MEMORANDUM OPINION, AND FINDINGS OF FACT AND CONCLUSIONS OF LAW, AFTER PHASE I TRIAL
MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE
ResCap and the Creditors’ Committee (the “Plaintiffs”) are co-proponents of a reorganization plan that treats the junior secured noteholders (“JSNs”) as underse-cured, but would pay them the face amount of all principal and prepetition interest ($2.222 billion, less $1.1 billion re *556 paid postpetition). The JSNs voted against and oppose confirmation of the plan.
The JSNs contend they are oversecured and entitled to postpetition interest (at the default rate) and fees; they also contend they are entitled to recover an adequate protection claim of $515 million based on alleged diminution in value of their prepet-ition collateral used during the case under a series of consensual cash collateral orders. 1 They also contend that their collateral should be increased as the result of an “all assets” pledge, which purportedly attaches to the Debtors’ assets that (1) were once excluded from the “all assets” pledge but no longer are, (2) were released from the JSNs’ liens but were subsequently reacquired by the Debtors, or (3) were never properly released from the JSNs’ liens at all.
The Plaintiffs contend that (1) the JSNs are undersecured and, therefore, not entitled to postpetition interest and fees; (2) the JSNs’ collateral has not declined in value since the petition date and thus the JSNs cannot assert an adequate protection claim; (3) the JSNs’ collateral should be reduced from lien challenges to deposit accounts and real estate owned (“REO”) assets; (4) the Debtors’ transfers of approximately $270 million of collateral to the undersecured JSNs in the 90 days before bankruptcy are avoidable preferences; and (5) and the principal amount of the JSNs’ claim must be reduced by approximately $386 million for unmatured interest arising from original issue discount (“OID”) created as part of the Debtors’ “fair value” debt-exchange offer in 2008.
The swing between the JSNs’ projected recoveries under the proposed plan and their “ask” is at least $350 million, or perhaps more. In other words, the parties are fighting about a lot of money.
The legal issues are framed in two adversary proceedings, one filed by the Debtors and the other by the Creditors’ Committee (the “Committee”) after it was given standing in an order granting an STN motion. The two adversary proceedings, asserting both claims and counterclaims, were consolidated. In two earlier written decisions, the Court granted in part (sometimes with prejudice and sometimes without prejudice) and denied in part motions to dismiss some of the claims and counterclaims. (See In re Residential Capital, LLC, 495 B.R. 250 (Bankr.S.D.N.Y.2013), ECF Doc. # 74, and In re Residential Capital, LLC, 497 B.R. 403 (Bankr.S.D.N.Y.2013), ECF Doc. # 100. 2 ) Familiarity with those decisions is assumed.
The Court established an expedited schedule for discovery and trial. The trial was bifurcated into two phases because some issues involve only the Plaintiffs and Defendants (as defined below) while other issues potentially involve other creditor constituencies in the case. The Phase I trial, conducted between October 15-23 and on November 6, 2013, was limited to disputed issues between the Plaintiffs and Defendants, to simplify the trial and limit the number of parties that felt it necessary to actively participate; the Phase II trial, involving issues potentially affecting the Plaintiffs, Defendants and a broader group *557 of parties in interest in the bankruptcy case, will be part of the contested plan confirmation hearing now scheduled to begin on November 19, 2013.
On August 23, 2013, the parties submitted an agreed list of issues for trial. (ECF Doc. #84.) A Joint Pretrial Conference Order, approved by the Court on October 18, 2013, provides stipulations of fact, the parties’ factual and legal contentions, and exhibit and witness lists. (ECF Doc. # 161.) All direct fact and expert sworn witness testimony was filed in advance, with the witnesses in court during the trial for cross and re-direct examination. Motions in limine to preclude some of the proposed expert testimony were granted in part and denied in part. (Oct. 16 Tr. 8:2-15. 3 ) Deposition designations and counter-designations were introduced into evidence at trial mostly without objections. 4 Voluminous exhibits were admitted in evidence at trial, mostly without objections. The parties’ filed post-trial submissions on November 1, 2013, and conducted closing arguments on November 6, 2013.
This Opinion resolves the legal and factual issues in the Phase I trial. The Court completed the Opinion quickly because the outcome of the Phase I trial impacts Phase II and the confirmation hearing. This Opinion contains the Court’s findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52, made applicable to these adversary proceedings by Fed. R. Bankr. P. 7052. In making its findings of fact, the Court has resolved credibility issues and the weight appropriately given to conflicting evidence. Where contested or disputed facts or opinions were offered during trial, this Opinion reflects the Court’s resolution of those disputes, whether or not the opinion specifically refers to the contrary evidence introduced by the opposing parties.
All of the issues in the Phase I trial are “core,” as provided in 28 U.S.C. § 157 (b)(2). Because the JSNs (through UMB, the indenture trustee) submitted a proof of claim in this case, seeking to recover all principal, prepetition and post-petition interest and fees, and have asserted an adequate protection claim, all of the issues raised and resolved in these adversary proceedings necessarily must be resolved as part of the claims-allowance process. Therefore, the Court concludes that it has the constitutional authority to enter final orders and judgment in these adversary proceedings. Because issues in these adversary proceedings remain to be resolved following the Phase II trial and confirmation hearing, no final judgment can be entered now. This Opinion does include the Court’s final resolution of the issues upon which it now rules.
The results of the Phase I trial can be viewed as a split decision — some issues have been resolved in favor of the Plaintiffs and some in favor of the Defendants. Subject to the outcome of the Phase II *558 trial, the Court concludes that the JSNs’ claim should not be reduced for unmatured OID; the JSNs have failed to establish that they are entitled to recover an adequate protection claim; the JSNs have liens on certain contested collateral, including certain intangible assets, but the JSNs do not have liens on the full extent of the collateral claimed; the Plaintiffs have failed to establish that the JSNs received avoidable preferences during the preference period (as defined below); and the JSNs are undersecured and not entitled to postpetition interest and fees. As explained below, the Court concludes that (subject to the results of the Phase II trial) the JSNs are undersecured by approximately $318 million.
I. BACKGROUND
On May 14, 2012 (the “Petition Date”), the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. Since the Petition Date, the Debtors have continued to operate their businesses and manage their properties as debtors in possession. Before filing for bankruptcy, the Debtors were a leading originator of residential mortgage loans and, together with their non-Debtor affiliates, the fifth largest servicer of residential mortgage loans in the United States, servicing approximately $374 billion of domestic residential mortgage loans and working with more than 2.4 million mortgage loans across the United States. (Maraño Direct ¶ 23.)
Defendant UMB Bank, N.A. (“UMB”) is the successor indenture trustee (in such capacity, the “Notes Trustee”) for the 9.625% Junior Secured Guaranteed Notes due 2015 issued by ResCap (the “Junior Secured Notes” or the “Notes”). (PTO ¶ 3.) Wells Fargo Bank, N.A. (“Wells Fargo”) — also a defendant — is the third priority collateral agent and collateral control agent for the Junior Secured Notes. (Id. ¶ 4.) Defendant Ad Hoc Group of holders of Junior Secured Notes (the “Ad Hoc Group” or the “JSNs” and, together with the Notes Trastee, the “Defendants” 5 ) comprises entities that hold, or manage entities that hold, Junior Secured Notes. Membership in the Ad Hoc Group changes from time to time, as set forth in the Ad Hoc Group’s statements periodically filed with the Court pursuant to Rule 2019 of the Federal Rules of Bankruptcy Procedure. (Id. ¶ 6.)
The Defendants’ claims against the Debtors’ estates arise from Junior Secured Notes that ResCap issued pursuant to an Indenture dated June 6, 2008. (PX 1.) Those notes and the collateral securing those notes are discussed in greater detail below. As of the Petition Date, the JSNs held secured claims against ResCap, and certain of its affiliates as guarantors and grantors, in the face amount of $2.222 billion, consisting of $2.120 billion in unpaid principal as of the Petition Date, and $101 million in unpaid prepetition interest. (DX ABF at 3.) The issue whether the face amount of the claim should be reduced by unamortized OID is discussed in section III.A below.
A. The Adversary Proceedings
1. Complaints and Counterclaims
In or about July 2012, the Committee began investigating what it believed to be security interests improperly asserted by the Defendants. The Committee filed its complaint on February 28, 2013 (ECF Doc. # 1), seeking among other things (1) a declaratory judgment on claims that (a) certain of the Debtors’ property is not *559 subject to liens or security interests in favor of the JSNs, and that (b) certain liens or security interests on property of the Debtors are unperfected; (2) an order avoiding the JSNs’ allegedly unperfected liens on or security interests in certain property; (3) an order avoiding as preferential certain liens or security interests allegedly granted for the Defendants’ benefit within 90 days of the Petition Date; (4) an order characterizing postpetition payments to the Defendants’ professionals as payments of principal; 6 (5) an order clarifying the priority of the JSNs’ liens; and (6) an order disallowing the JSNs’ claims pending final resolution of the Committee’s complaint; and (7) an order disallowing a portion of the JSNs’ claims as a result of unmatured interest allegedly arising from the 2008 debt-for-debt exchange. (Id.)
On May 3, 2013, the Debtors filed a Complaint (ECF 13-01343, Doc. # No. 1), and filed an Amended Complaint on June 19, 2013. (ECF 13-01343 Doc. #8.) In their amended complaint, the Debtors seek declaratory judgments, including among other things that: (1) the JSNs’ lien on general intangibles does not include any lien on the proceeds of, or value attributed to, the sale of assets pursuant to the Ocwen Asset Purchase Agreement dated November 2, 2012 (“Ocwen APA”); (2) the JSNs are not entitled to an adequate protection replacement lien; (3) the JSNs are not entitled to a lien on the assets that secure the Amended and Restated Loan Agreement, dated December 30, 2009 (“AFI LOC”), or any other collateral under the Notes Indenture (defined below) that was released by Wells Fargo; (4) the JSNs are not entitled to a lien on any recoveries of any future avoidance actions brought by or on behalf of the Debtors’ estates; (5) the JSNs are undersecured and not entitled to postpetition interest; (6) if the JSNs are found to be entitled to postpetition interest, the interest should be awarded at the contractual nondefault rate of interest; and (7) the JSNs are underse-cured because they are not oversecured at any individual Debtor entity.
On June 21, 2013, the Court entered an order consolidating the Committee’s action with the Debtors’ action. (ECF Doc. #41.) On June 28, the Defendants filed an Answer, Affirmative Defenses and Counterclaims to the Debtors’ Amended Complaint. (ECF 13-01343 Doc. # 14.) On July 29, 2013, the Defendants amended their answer and counterclaims. (ECF 13-01343 Doc. # 29.) Those amended counterclaims seek declaratory relief: (1) establishing the ownership and value of the stipulated and disputed collateral and the assets pledged in support of the JSNs; (2) establishing that the JSNs have a lien on claims against Ally Financial, Inc. (“AFI”); (3) determining the distributable value to be generated from all intercompa-ny claims and causes of action; (4) allocating the purchase prices of Debtor assets sold in Court-approved sales; (5) establishing that the JSNs have a lien on the purportedly released assets; (6) determining that the use of cash collateral results in diminution in the collateral’s value; (7) enforcing the Debtors’ section 506(c) waiver; (8) defining the exact quantum of the direct costs of liquidating collateral; (9) determining the amount of the JSNs’ ade *560 quate protection liens; (10) reallocating administrative expenses; (11) establishing that the JSNs are entitled to postpetition interest, default interest, fees, and expenses; (12) determining that the claims asserted by any residential mortgage backed security trust (“RMBS Trust”), monoline insurers, and RMBS certificate-holders must be subordinated; and (13) establishing that the claims against AFI identified by the Examiner 7 appointed in the chapter 11 proceedings and/or the property that is the subject of those claims, constitute the JSNs’ collateral.
2. Motions to Dismiss
On April 30, 2013, UMB filed a motion to dismiss with prejudice Counts I, IV, V, VII, XI, XII, XIII and XIV of the Committee’s complaint in their entirety, and Counts III and X in part. (ECF Doc. # 20.) UMB later withdrew its motion to dismiss certain of those counts, and on July 26, 2013, the Court heard oral argument on UMB’s motion. (ECF. Doc. # 61.) The Court entered an opinion and order granting in part and denying in part UMB’s motion. (ECF Doc. # 74.) In that opinion, the Court dismissed Count V and denied without prejudice UMB’s motion to dismiss Counts I, IV, and XIII. (Id.) See Residential Capital, 495 B.R. at 250 .
On July 16, 2013, the Defendants filed a Motion to Dismiss Counts 3 and 5 of the Debtors’ Amended Complaint. (ECF Doc. # 52.) That same day, the Plaintiffs filed a motion to dismiss fourteen of the Defendants’ counterclaims. (ECF Doc. # 53.) The Court heard oral argument on both of those motions to dismiss on August 28, 2013, and subsequently issued a memorandum opinion and order (1) denying the Defendants’ motion without prejudice, and (2) granting in part and denying in part the Plaintiffs’ motion. (ECF. Doc. # 100.) See Residential Capital, 497 B.R. at 403 .
B. The Trial
On August 23, 2013, the parties entered into a Joint Statement of Issues, which the Court so-ordered. (ECF Doc. # 84.) That statement of issues contemplated a bifurcated adjudication whereby certain issues would be decided in a Phase I trial, and others would be decided in a Phase II trial (if necessary). The Phase I trial issues include (1) “[w]hether and to what extent any unamortized portion of the alleged original issue discount on the Junior Secured Note[holders]’ claim should be disallowed as unmatured interest,” (2) “valuation of each Debtor’s collateral ... securing the JSN claims, on a debtor-by-debtor basis, and the appropriate methodologies for conducting such valuation,” 8 (3) “[wjhether and to what extent the JSNs have liens on various items of disputed collateral ... including issues related to avoidance of preferential transfers, disputed lien releases, asserted equitable liens resulting therefrom, and potential avoidance of any such equitable liens,” (4) adequate protection issues, including “[wjhether and to what extent the JSNs’ collateral has diminished in value as a result of the Debtors’ use of cash collateral; whether the JSNs are entitled to an adequate protection claim for some or all of that value diminution; and, if the Court deems it appropriate to decide during *561 Phase I, whether as a matter of law the JSNs might be entitled to adequate protection for any diminution in value associated with the Debtors’ entry into the Global Settlement,” (5) “the appropriate allocation of proceeds to JSN collateral from the Debtors’ asset sales to Ocwen and Walter” (described below), (6) “[w]hether the JSNs have a lien on all or any portion of the AFI Contribution, 9 and/or all or any of causes of action of the Debtors or avoidance claims that the Debtors may bring that are being settled in the Global Settlement,” 10 and (7) “[w]hether under section 506 of the Bankruptcy Code, the [Noteholders] may recover postpetition interest and other fees, costs, or charges under the Indenture (a) only to the extent they are oversecured by assets at a single Debtor entity without reference to collateral at other Debtor entities; (b) to the extent they are overse-cured with reference to all collateral held by any Debtor, collectively; and/or (c) to the extent that the Debtors collectively have sufficient assets to pay the [Note-holders’] claims in full and/or any particular Debtor is solvent.” (Id.) 11
The Court conducted a six-day hearing on Phase I from October 15-17 and October 21- 23, 2013. The parties submitted the written direct testimony of 13 witnesses: Teresa Rae Farley (“Ms. Farley”), John D. Finnerty (“Dr. Finnerty”), James Gadsden (“Gadsden”), Marc E. Landy (“Mr. Landy”), Thomas Maraño (“Mr. Maraño”), Marc D. Puntus (“Mr. Puntus”), and Mark Renzi (“Mr. Renzi”), for the Plaintiffs; and Michael Fazio (“Mr. Fa-zio”), Jeffrey M. Levine (“Mr. Levine”), Ronald J. Mann (“Mr. Mann”), P. Eric Siegert (“Mr. Siegert”), John A. Taylor (“Mr. Taylor”), and Scott Winn (“Mr. Winn”), for the Defendants. Each of these witnesses was subjected to cross-examination and redirect at trial. Neither party called any rebuttal witnesses. The Plaintiffs and the Defendants sent their final exhibit lists to the Court post trial. More than 700 exhibits were admitted in evidence, some for limited purposes. The Parties filed amended consolidated deposition designations on October 29, 2013 (ECF Doc. # 179).
II. FINDINGS OF FACT
A. The Notes, the Collateral, and the Loan Facilities
1. The AFI Revolver and the Junior Secured Notes
On or about June 4, 2008, Residential Funding Company, LLC (“RFC”) and GMAC Mortgage LLC (“GMAC”), as borrowers, ResCap and certain other entities as guarantors, and certain entities as obli-gors, entered into a revolving loan facility (the “Revolver”) as amended from time to time. The Revolver was provided under a Loan Agreement (the “Original Revolver Loan Agreement”), dated June 4, 2008 (and amended from time to time before December 30, 2009), with AFI as initial lender and lender agent. (PTO ¶ 10; PX *562 5.) To secure the obligations under the Revolver, ResCap and certain of its subsidiaries, as grantors, granted a security-interest in favor of Wells Fargo, as First Priority Collateral Agent and Collateral Control Agent, pursuant to a First Priority Pledge and Security Agreement and Irrevocable Proxy (the “Original Revolver Security Agreement”), dated June 4, 2008 (and amended from time to time before December 30, 2009). (PTO ¶ 11; PX 7.) ResCap also issued $4.01 billion in face principal amount of Junior Secured Notes (the “Junior Secured Notes”) pursuant to an indenture dated as of June 6, 2008 (the “Notes Indenture”). (PX 1 § 1.01.) Interest accrues on the Junior Secured Notes at an annual 9.625% rate. 12 (Id. at 8.) ResCap issued those Junior Secured Notes with certain other entities serving as guarantors and obligors, 13 and with U.S. Bank National Association, as the original indenture trustee. (Id.) To secure the obligations under the notes, ResCap and the guarantors under the Notes Indenture granted a security interest in favor of Wells Fargo — the Third Priority Collateral Agent — pursuant to the Third Priority Pledge and Security Agreement and Irrevocable Proxy (the “Original JSN Security Agreement”), dated June 6, 2008 (and amended from time to time before December 30, 2009). (PTO ¶ 13; PX 3.)
Pursuant to Original Revolver Security Agreement and the Original JSN Security Agreement, the collateral securing the Revolver was identical to the collateral securing the Junior Secured Notes. (See PX 7, PX 3.) 14 On December 30, 2009, the Original Revolver Security Agreement, the Original Revolver Loan Agreement, and Original JSN Security Agreement were amended and restated, giving rise to the “Revolver Loan Agreement,” the “Revolver Security Agreement,” and the “JSN Security Agreement.” Following those amendments, the collateral securing the agreements remained identical. (See PX 8, PX 4.) The Plaintiffs contend that certain collateral was later pledged to the Revolver but not to the JSNs, which the Court will address below.
Since the collateral securing the Revolver and the Junior Secured Notes was identical, the creditors entered into an Inter-creditor Agreement on June 6, 2008. (PX 2.) That agreement governs the Revolver Collateral Agent’s ability to enforce rights associated with collateral. The governing documents expressly authorize the Collateral Agent, at the request of the Debtors, to release liens on the collateral previously securing the Revolver and the JSNs. Any lien releases executed by the Revolver Collateral Agent were binding on the Junior Secured Notes.
2. Primary Collateral and Blanket Lien Collateral
The Revolver and Junior Secured Notes were secured by two categories of collater *563 al: Primary Collateral and Blanket Lien Collateral. (PTO ¶ 12.) Primary Collateral was specifically delineated on the schedules to the AFI Revolver and served as the borrowing base under the AFI Revolver. Primary Collateral was subject to various operational and reporting requirements. (Farley Direct ¶ 24; Farley Dep. 48:14-21.)
Blanket Lien Collateral encompassed the balance of the collateral pledged as security under the AFI Revolver and not falling within the definition of “Excluded Assets.” 15 (Farley Direct ¶ 25.) The Blanket Lien Collateral included assets that were not Primary Collateral, “whether [such assets were] now or hereafter existing, owned or acquired and wherever located and howsoever created, arising or evidenced.” (PX 3 at 11-12; see also PX 4 at 15.) All of the assets that came in to ResCap (except Excluded Assets) after the parties executed the Original JSN Security Agreement were subject to the JSNs’ third priority lien due to the blanket lien. CSee PX 3 at 11-13; PX 4 at 15-17.)
Between the Primary and Blanket Lien Collateral, the JSNs’ collateral included (1) assets and property of ResCap, the Notes Guarantors, and the Additional Notes Grantors (other than Excluded Assets); 16 (2) certain equity interests, certain promissory notes and other debt instruments, certain deposit and security accounts, and certain related assets of the Notes Equity Pledgors; (3) all “Financial Assets” (as defined in Article 8 of the U.C.C.) and certain related assets of the FABS Grantors (as defined in the JSN Security Agreement); and (4) certain deposit accounts and certain related assets of the Additional Account Parties (collectively, the “JSN Collateral”). (PX 4.)
Primary Collateral could only be released if proceeds of that collateral were used to pay down the AFI Revolver or to buy replacement collateral. (See PX 1 at 56.) Blanket Lien Collateral, on the other hand, could be released without the same restrictive requirements. (Farley Direct ¶ 25; Oct. 16 Tr. 180:4-8.)
The Notes Indenture and the JSN Security Agreement combined to permit the Debtors to incur future indebtedness secured by liens, to conduct certain asset sales, and to release JSN Collateral so long that release was part of a transaction not prohibited by the Notes Indenture. (PX 1 §§ 1.01, 4.01, 8.04(a)®; PX 4 § 7.) Additionally, the Intercreditor Agreement allowed the First Priority Collateral Agent to release liens on any collateral in connection with a sale or disposition of the collateral allowed under the Revolver Agreements and the Junior Secured Notes Agreement. (PX 2 § 3.1.) That collateral release would be binding on the JSNs. (Id.) The Debtors could only release JSN Collateral pursuant to the JSN Security Agreement, the Notes Indenture, and the Intercreditor Agreement. Additionally, the JSN Indenture allowed the Debtors to move assets among their subsidiaries, and to create new subsidiaries, as long as the JSNs continued to maintain liens on such *564 assets. (PX 1 § 4.7 (requiring all “Significant Subsidiaries” to become “Guarantors” and thus also “Grantors” under the JSN Pledge Agreement).)
3. The AFI LOC and Released Blanket Collateral
In 2009, the Debtors determined that they needed additional financing to continue operating their businesses. To that end, on or about December 30, 2009, RFC and GMAC, as borrowers, entered into the AFI LOC, provided under an Amended and Restated Loan Agreement (“LOC Loan Agreement” with AFI as initial lender and lender agent). (PTO ¶ 18; PX 9.) To secure the obligations under the AFI LOC, ResCap and certain other Debtors granted a security interest to AFI pursuant to the Amended and Restated Pledge and Security Agreement and Irrevocable Proxy, dated December 30, 2009 (as amended from time to time, the “LOC Security Agreement”) with GMAC Investment Management LLC, as secured party, and AFI, as omnibus agent, lender agent, lender and secured party. (PTO ¶ 19.) Granting that security interest to secure the AFI LOC required the First Priority Collateral Agent and Third Priority Collateral Agent to release their respective liens on certain collateral. (PX 134; Farley Direct ¶¶ 52-61.)
In 2010 and 2011, the Third Priority Collateral Agent released its lien on a variety of assets included in the JSN Collateral so the collateral could be pledged to secure the AFI LOC, including (1) certain mortgage loans, servicing rights and other assets (the “Released Loan Collateral”), and (2) certain Freddie Mac servicing advances (the “Released Advances,” and collectively with the Released Loan Collateral, the “Released Blanket Collateral”). (PX 134.) To effectuate the releases, the Third Priority Collateral Agent executed (1) a Partial Release of Collateral, dated May 14, 2010, releasing the security interest in the Released Loan Collateral that previously secured the Junior Secured Notes, and (2) a Partial Release of Collateral, dated May 27, 2011, that released the security interest in the Released Advances that previously secured the Junior Secured Notes (together with the May 14, 2010 release, the “Blanket Releases”). (PX 130 at 1176-1305, PX 134.) The Third Priority Collateral Agent also filed U.C.C.-3 amendments that removed the Released Blanket Collateral from the collateral set forth in the original U.C.C.-ls (as amended) filed by the Third Priority Collateral Agent. (PX 131; PX 133.) Exhibits annexed to these U.C.C.-3s contained descriptions of the Released Blanket Collateral that were identical to those in the Blanket Releases themselves. (Id.)
The May 14, 2010 release described various categories of Released Loan Collateral, including any existing or future rights in “Subject Mortgage Loan[s].” The release defined those loans as:
Any Mortgage Loan (a) which is identified in a Mortgage Schedule delivered under the LOC Loan Agreement, (b) the carrying value of which is included in the calculation of the borrowing base included in a borrowing base report or a monthly collateral report under the LOC Loan Agreement, or (c) which is indicated in a Relevant Party’s 17 books and records as having been pledged to the Lender Agent. 18
(PX 134 at 8.) Thus, a mortgage loan listed as AFI LOC collateral on the Debtors’ books and records would qualify as a Sub- *565 jeet Mortgage Loan that was released. The LOC Loan Agreement defines mortgage loans to mean residential mortgage loans and any right to receive payment from the Federal Housing Administration and Department of Veterans Affairs (“FHA/VA”) for insurance or guarantees of residential mortgage loans. 19 (PX 9 at 87; PX 10 at 100.)
Other categories of collateral released under the Blanket Loan Release included (1) “Servicing Rights Collateral,” defined as all of RFC’s and GMAC’s rights under existing or future agreements pursuant to which they were obligated to perform collection, enforcement or similar services to maintain and remit funds collected from mortgagees; and (2) all intangible assets and other general intangibles relating to Subject Mortgage Loans and Servicing Rights Collateral. (PX 134 at 6-8.)
The May 27, 2011 release described various categories of Released Advances that were being released from the JSNs’ liens. These assets included any existing and future advances relating to mortgage loans and real estate owned property made pursuant to certain contracts with Freddie Mac. (See PX 130 at 1181-83.)
B. The Debtors’ Books and Records
To comply with the numerous collateral tracking and reporting requirements of the Revolver Loan Agreement, the Debtors developed and implemented technological systems and operational procedures. (Farley Direct ¶ 29.) Starting in 2008, the Consolidated Financial Data Repository, or “CFDR,” became the Debtors’ primary record for tracking their assets and was maintained in the ordinary course of the Debtors’ business. (Farley Direct ¶¶ 29-30; see also PX 139.) The CFDR tracks various categories of assets, including without limitation, held for sale (“HFS”) and held for investment (“HFI”) mortgage loans, FHA/VA receivables, servicing advances, lending receivables, service fees and late charges, REO property, trading securities, and mortgage servicing rights. (Farley Direct ¶ 30 n.4.) Each asset is marked in the CFDR to reflect the facility to which it has been pledged. (Oct. 16 Tr. 194:3-10.) Because the collateral pools for the Revolver and the Junior Secured Notes were the same, the CFDR tracked the JSN Collateral by tracking the Revolver collateral. (Farley Direct ¶ 30.)
Assets comprising Primary Collateral under the Revolver Security Agreement are tracked and marked in the CFDR as pledged to the Revolver. (Oct. 16 Tr. 194:3-6.) Assets comprising Blanket Lien Collateral under the Revolver are also tracked, but before the Petition Date, those assets were marked as “Unpledged” in the CFDR because (1) the Debtors were not required, and the CFDR was not used, to report on Blanket Lien Collateral; and (2) Blanket Lien Collateral was not subject to the same constraints relating to use of proceeds as Primary Collateral. (Farley Direct ¶ 35.) Not all unpledged assets constituted Blanket Lien Collateral, though, because Excluded Assets under the Revolver Security Agreement and JSN Security Agreement would also be listed as unpledged. (Farley Direct ¶ 35; Oct. 16 Tr. 194:7-10.)
*566 Shortly before the Petition Date, the Debtors updated the CFDR to comply with stricter reporting and cash tracking requirements attendant to the bankruptcy process and recoded assets constituting Blanket Lien Collateral from “Unpledged” to “Blanket Lien Collateral.” (Ruhlin Dep. 119:4-9, 155:16-156:2, 156:15-21; Farley Direct ¶ 36; Farley Dep. 115:4-14.) When the Debtors repurposed the CFDR in 2012 and began specifically tracking blanket lien collateral, “what [ResCap] viewed as blanket lien collateral was no longer included as unpledged. It was marked otherwise to be more specific that it related to pledged collateral in some way.” (Ruhlin Dep. 119:4-9; see also Farley Dep. 138:4-11 (“Shortly before the filing date ... since [ResCap was] going to have to start reporting on all assets which had been subject to the blanket lien at the time of the filing date, there was an effort undertaken to label all of the assets which were in [ResCap’s] view ... subject to the blanket lien.”).)
During the trial, Ms. Farley testified that the CFDR is a Sarbanes-Oxley (“SOX”) compliant financial tool that is auditable, verifiable, and subject to a heightened level of scrutiny and attention by the Debtors’/AFI’s SOX teams and the Debtors’ external auditors, Deloitte & Touche. (Farley Direct ¶ 43; Oct. 16 Tr. 233:1-6, 234:23-235:25.) Ms. Farley also testified that these controls were rigorous because the CFDR was a critical financial technology for the Debtors. (Oct. 16 Tr. 235:24-25.) Ms. Farley further detailed the strict controls on the collateral tracking process under the CFDR, including the processes for (1) designating an asset as being pledged to a particular facility; (2) changing an asset’s designation; (3) reconciling any inconsistencies between the CFDR data, the general ledger, and source data submitted by various business units; and (4) submitting collateral reports under the Revolver and LOC Facility. (Farley Direct ¶¶ 30 n.4, 33-34, 38-42; Oct. 16 Tr. 194:1-10; see also PX 162.)
Following Ms. Farley’s testimony, over the Defendants’ objection, the Court admitted the CFDR in evidence as a business record maintained by the Debtors in the ordinary course of business. (Oct. 17 Tr. 32:17-33:17, 40:7-41:18.) The Court expressly finds that the CFDR is a reliable and accurate business record containing a contemporaneous record of the Debtors’ business transactions concerning the assets tracked in the system. The Court also expressly finds that the Defendants’ challenge to the CFDR is unpersuasive.
1. The CFDR and the Released Blanket Collateral
The CFDR constituted the Debtors’ books and records by which the they tracked collateral pledged to various facilities. Thus, collateral listed as pledged to the AFI LOC in the CFDR would meet the definition of a Subject Mortgage Loan released by the Third Party Collateral Agent (discussed above) as part of the Blanket Releases.
The JSNs claim that they have a lien on $910 million of collateral that was identified in the CFDR as pledged to the AFI LOC on the Petition Date. That collateral is composed of categories of assets that were released under either of the Blanket Releases. 20 (Farley Direct ¶ 62.) The *567 JSNs argue that other evidence of the release of this $910 million of JSN Collateral should exist, including schedules of mortgage loans, notices of collateral additions to the LOC Loan Agreement, and electronic templates used to update the CFDR. The Debtors, though, either did not maintain all these documents or did not locate them in their searches during discovery. (See ECF 13-01343 Doc. # 117; see also Oct. 16 Tr. 237:6-239:14.)
Regardless, there is no dispute that $910 million of collateral is listed in the CFDR as pledged to the AFI LOC; nor is there any dispute that the $910 million comprises categories of assets that were released under the Blanket Releases. In ruling on the motions to dismiss, the Court held that the description of the collateral covered by the releases satisfied the requirements of the Uniform Commercial Code (“U.C.C.”) section 9-108(b). Residential Capital, 497 B.R. at 418 . Therefore, the Court finds that the $910 million was effectively released, and no further evidence is necessary to support those releases. The absence of the additional records sought by the Defendants is not sufficient to overcome the evidence that was introduced at trial. The Court expressly finds that a preponderance of the evidence supports the finding that the $910 million of collateral was released from the JSNs’ lien and pledged to the AFI LOC.
C. Events Leading Up to the Debtors’ Bankruptcy
In August 2011, the Debtors began to contemplate out-of-court restructuring opportunities, a potential chapter 11 filing, financing alternatives and asset sales. To that end, in October 2011, ResCap retained Centerview Partners LLC (“Centerview”) to assist in this process. (Puntus Direct ¶¶ 1, 16, 40, 41, 43; Maraño Direct ¶ 28.) In December 2011 and January 2012, faced with significant debt maturities coming due in spring 2012, the Debtors and Cen-terview began evaluating, and launched a process to obtain, a stalking horse bid(s) for a chapter 11 sale of all or a substantial portion of the Debtors’ assets. (Pun-tus Direct ¶¶ 3, 16, 44; Maraño Direct ¶ 29.) Contemplating a potential bankruptcy filing, the Debtors wanted to obtain debtor-in-possession (“DIP”) financing, secure a stalking horse bid, and continue to work with government-sponsored entities (“GSEs”) and regulators to maintain the Debtors’ GSE mortgage servicing rights (“MSRs”). (Maraño Direct ¶ 3 1.) The Debtors also wanted to resolve potential claims against AFI to obtain AFI’s support for the business and resolve litigation threats asserted by RMBS trustees. (Id.)
1. Stalking Horse Bids
On or about January 23, 2012, Center-view launched a marketing process for the Debtors’ assets. (Puntus Direct ¶ 48.) After developing a list of potential bidders, Centerview contacted five potential bidders and negotiated nondisclosure agreements with each one. (Id.) Centerview made clear that the Debtors would consider bids for any and all asset combinations, including bids on individual assets. (Id.) *568 Centerview also opened a data room to facilitate bidder due diligence, and the Debtors held multi-day management presentations with three of the five potential bidders. (Id.)
In February 2012, Centerview received three preliminary indications of interest from (a) Nationstar Mortgage LLC (“Na-tionstar”) (PX 27), (b) Ocwen Loan Servicing LLC (“Ocwen”) (PX 25), and (c) a certain undisclosed financial bidder (PX 17). The financial bidder’s letter of intent (“LOI”) included a bid of $1.5 billion for the Debtors’ mortgage loan origination and servicing assets (the “Servicing and Origination Assets”) and portions of the Debtors’ whole loan portfolio (the “Whole Loan Portfolio”). Nationstar also submitted an LOI, which included a bid of $2.6 billion for a substantial portion of the Debtors’ assets. (Puntus Direct ¶ 49.) Ocwen’s initial LOI was a bid of $1,426 billion to acquire solely the Debtors’ private label securitization (“PLS”) MSRs and associated advances. (Id.) The Debtors and their advisors determined that proceeding with two of the three bidders — Nationstar and the financial bidder — was most prudent. (Id. ¶ 50.) Centerview then approached each of the two with a detailed request for supplemental information. (Id.) To that end, on February 22, 2012, Centerview sent a letter to Fortress Investment Group LLC (“Fortress”) — Nationstar’s primary shareholder — requesting additional clarification related to Nationstar’s bid. (PX 366.) Centerview asked Nationstar to clarify how it would allocate its bid among the purchased assets, “including but not limited to a separate allocation for each of the financial assets (MSR, advances, whole loan portfolio) as well as the servicing and origination platforms, respectively.” 21 (Id.) In its response to Centerview’s questions about bid allocation, Fortress specified that it would allocate no value to either the consumer lending or servicing platforms. (PX 28 at 2.)
Nationstar submitted a revised LOI on February 28, 2012, increasing the purchase price on assets included in its initial bid by $100 million, and expanding the assets purchased to include GSE and PLS advances. (Puntus Direct ¶ 5 1.) It also increased its total bid for the Debtors’ mortgage loan origination and servicing assets and Whole Loan Portfolio to $4.2 billion for the Debtors’ mortgage loan origination and servicing assets and Whole Loan Portfolio. (Id.) Nationstar’s bid on the Whole Loan Portfolio was contingent on AFI providing better-than-market debt financing for such portfolio. (Id.) After this bid, the Debtors decided to proceed with Nationstar as the exclusive bidder on the assets. (Id. ¶ 52.) In early March 2012, the Debtors and their advisers negotiated the terms of the asset purchase agreement with Nationstar (the “Nationstar APA”), and Nationstar completed its analysis of the Debtors’ business. (Id. ¶ 55.)
During April and May of 2012, AFI decided not to provide Nationstar debt financing related to the Debtors’ Whole Loan Portfolio, and offered its own bid of $1.4 to $1.6 billion to acquire those assets, depending on whether the sale was effectuated through a section 363 sale or chapter 11 plan. (Id. ¶ 56.) AFI’s decision not to provide financing caused the value of Na-tionstar’s overall bid to decrease. (See PX 52 at 6.) The Debtors’ professionals determined that AFI’s bid to acquire the Whole Loan Portfolio was superior to Nations- *569 tar’s bid for those assets, particularly because AFI was not seeking any stalking horse protections in connection with the sale and had submitted a draft asset purchase agreement with very favorable terms for the Debtors. (Puntus Direct ¶ 56.) Thus, the Debtors and their advis-ors negotiated the terms of an asset purchase agreement with AFI (the “AFI APA”).
The Debtors’ Board of Directors approved both APAs. (Id. ¶ 57.) On May 13, 2012, both APAs were executed and delivered by the parties. (Id.) On the Petition Date, the Debtors filed two stalking horse bids with the Bankruptcy Court: Nations-tar’s $2.3 billion stalking horse bid for the Debtors’ mortgage loan origination and servicing assets (encompassed in the Na-tionstar APA), and AFI’s $1.4 to 1.6 billion bid for the Debtors’ Whole Loan Portfolio (encompassed in the AFI APA). (Puntus Direct ¶ 57; Maraño Direct ¶ 58.)
2. Communications and Settlements with Various Parties
During the prepetition auction process, the Debtors regularly communicated with the GSEs concerning the proposed agreement and plans for maintaining the Debtors’ origination and servicing operations as a going concern until closing of the final sale to preserve the value of the MSRs and associated advances. (Maraño Direct ¶ 50; Puntus Direct ¶ 45.) Through these regular contacts, the Debtors convinced the GSEs that the Debtors could sell the assets without damaging the MSRs and associated advances. (Puntus Direct ¶ 46.) The stakes were high: if the GSEs had concluded that ResCap could not operate or credibly pursue an orderly sale of the mortgage servicing assets, and that the GSE-related assets might therefore have been subject to liquidation, the GSEs would raise the cost of doing business and seize their assets. (Maraño Direct ¶ 51.) By obtaining financing, use of cash, continuity of management through the end of sale, and a stalking horse bidder, the Debtors reassured the GSEs that during the chapter 11 sale process, the Debtors’ business would continue to function as usual pending the sale. (Id.)
Before the Petition Date, the Debtors negotiated a settlement with the Department of Justice, the Department of Housing and Urban Development, and the attorneys general of 49 states (the “DOJ/AG Settlement”) to resolve potential claims arising out of origination and servicing activities and foreclosure matters. (Id. ¶ 7.) The DOJ/AG Settlement required that the Debtors pay approximately $110 million in cash and provide various specified forms of borrower relief with a value of at least $200 million and that the Debtors — and any purchaser of the Debtors’ assets— implement a remedial program of loan modification and enhanced servicing measures, both subject to ongoing regulatory monitoring and oversight, and imposed increased operational costs. (Id. ¶ 53.) Also before the bankruptcy filing, the Debtors entered into a consent order settling an investigation by the Federal Reserve Board (the “FRB Consent Order”) arising out of the same general facts as the DOJ/AG Settlement. (Id. ¶54.) The terms of the FRB Consent Order required ResCap to pay a penalty of $207 million, as well as to enhance various aspects of their origination and servicing business, including their compliance and internal audit programs, internal audit, communications with borrowers, vendor management, employee training, and oversight by the Board of Directors. (Id.) The Consent Order required the Debtors — and any purchaser of the Debtors’ assets — to maintain *570 compliance with the terms of the order. 22 (Id.)
S. Prepetition Settlements and Plan Support Agreements
Before the Petition Date, the Debtors entered into plan support agreements with AFI and certain other parties in interest— including certain of the current Ad Hoc Group members — whereby the parties committed to support, subject to certain terms and conditions, the Debtors’ effort to pursue a chapter 11 plan pursuant to the terms provided in the Plan Term Sheet, dated May 14, 2012 (the “Prepetition Plan Term Sheet”). (PX 432.) The Prepetition Plan Term Sheet contemplated, among other things, that AFI would make a cash contribution in exchange for estate and third party releases. (PTO ¶ 24.) The Debtors and AFI reached a prepetition settlement approved by the ResCap board on May 13, 2012 (the “Original AFI Settlement”). (Maraño Direct ¶ 40.) That settlement was memorialized in a Plan Sponsor Agreement. (Id.) Under the terms of the Original AFI Settlement, AFI agreed to pay the Debtors $750 million, continue to support the Debtors’ origination business in chapter 11, provide a stalking horse bid for the Whole Loan Portfolio, provide DIP financing, and continue to provide the Debtors the shared services it needed to run its business. (Id. ¶ 41.) The Original AFI Settlement and Plan Sponsor Agreement also provided for the automatic termination of the agreements if the Court did not approve a chapter 11 plan on or before October 31, 2012. AFI and the Debtors agreed to monthly waivers of this automatic termination through February 28, 2013. (Id. ¶ 41; Puntus Direct ¶ 35.)
Under the plan support agreement entered into with the JSNs (the “JSN PSA”), the JSNs would have waived all rights to postpetition interest through December 31, 2012, so long as no unsecured creditor received postpetition interest, the JSN PSA did not terminate, and the effective date of the plan occurred by December 31, 2012, or (1) the closing of contemplated asset sales occurred by December 31, 2012, and (2) the effective date of the plan occurred by March 31, 2013. (Puntus Direct ¶ 33.) The JSN PSA also would have provided that AFI would subordinate a portion of its liens and claims to the JSNs. (Id.)
At the same time that the Debtors were negotiating with AFI, they were also negotiating with the trustees of certain RMBS trusts (the “RMBS Trusts”) for which the Debtors acted as sponsor, depositor, or in a similar capacity. (Id. ¶ 37.) These negotiations related to resolution of approximately $44 billion of potential liability for representation and warranty and servicing claims arising out of the Debtors’ private-label residential mortgage backed securities. (Maraño Direct ¶ 43.) The Debtors believed that resolving these private-label securities claims was crucial to enhancing the value of the Debtors’ assets for a potential sale. (Id.) The overhang of this litigation exposure had impeded the Debtors’ sale efforts in the years before the chapter 11 filing and would have diminished the value the Debtors’ creditors could have obtained in a chapter 11 sale. (Id.) Further, the RMBS Trustees (the “RMBS Trustees”) threatened to assert the right to withhold servicing advances owed to the Debtors as an offset against origination and servicing liabilities allegedly owed to them. (Id.)
In May 2012, the Debtors reached a proposed settlement with the institutional *571 investors holding a substantial stake in the RMBS Trusts (the “RMBS Settlement”). (Id. ¶44.) ResCap’s board of directors approved that agreement on May 13, 2012. (Id.)
With the stalking horse bids, proposed settlements, and plan support agreements in place, the Debtors filed their chapter 11 cases on May 14, 2012. Any notion that the Court was being presented with a prepackaged bankruptcy was short-lived, however, and these cases rapidly descended into warfare threatening the Debtors’ ability to continue operating as a going concern.
A Termination of the Initial Plan Support Agreements
By late September 2012, two events occurred that altered the calculus of the JSNs who supported the prepetition PSA. (Siegert Direct ¶ 12.) First, with the auction still a month away, there was no longer any possibility of an expedited distribution upon a rapid sale closing. (Id.) Second, the Committee challenged certain of the JSNs’ liens within the challenge period prescribed by the Cash Collateral Order. (Id.) The Ad Hoc Group then terminated the prepetition term sheet and inserted an express reservation of rights regarding adequate protection and allocation of expenses in each extension of the Cash Collateral Order. (Id.)
D. The Cash Collateral Order
To keep their business operating as debtors-in-possession, the Debtors sought to obtain postpetition financing and authorization to use the cash collateral encumbered by existing debt facilities. (Maraño Direct ¶ 33; Puntus Direct ¶ 17.) The continued funding would allow the Debtors to (1) continue to issue loans and offer loan modifications to thousands of borrowers; (2) continue to service mortgages and make advances associated with such servicing obligations; (3) comply with the Federal Reserve and FDIC consent order; (4) comply with the DOJ/AG Settlement; (5) comply with the agreements that had been entered into with the GSEs mandating the care with which their loans should be serviced and refinanced, and repurchase loans from the GSEs; and (6) maintain hundreds of employees through retention payments so that delinquencies would not increase and thus diminish the value of, and jeopardize the sale of, the Debtors’ MSRs and other assets. (Mara-ño Direct ¶ 34.) For example, the Debtors needed to continue funding their servicing advance obligations for the RMBS and other PLS, as well as GSE loans. (Id. ¶ 35.) With respect to the GSE loans, the GSEs actually owned the Debtors’ servicing rights, so if the Debtors failed to make the requisite advances, the GSEs could have revoked the Debtors’ servicing rights, and re-assigned those rights to another company. (Maraño Direct ¶ 35; Puntus Direct ¶ 19.)
The Debtors ultimately obtained DIP financing facilities from Barclays Bank PLC and AFI, as well as consensual use of cash collateral from their prepetition lenders, including the JSNs. (Maraño Direct ¶ 37.) On May 14, 2012, the Debtors filed motions seeking authorization to (1) enter the Barclays postpetition financing facility (the “Barclays DIP Facility”); (2) make postpetition draws under the AFI LOC up to $200 million; and (3) use cash collateral securing each of the Revolver, the AFI LOC, and the Junior Secured Notes to fund the cash needs related to operations and assets of each of the respective collateral pools. (Id.; Puntus Direct ¶ 28.) The motions were approved on an interim basis on May 15, 2012, and were approved on a final basis, with the consent of the JSNs and AFI, pursuant to orders entered on *572 June 25, 2012 (the “Cash Collateral Order”). (PX 76; Maraño Direct ¶ 37.)
Under the Cash Collateral Order, the Debtors were authorized to use cash collateral in accordance with the Forecasts (as defined in the Cash Collateral Order), and the JSNs were protected to the extent of the aggregate diminution in value of the JSN Collateral. (PTO ¶ 29.) Among other things, the JSNs were granted adequate protection liens on all of the collateral securing the AFI Revolver, the AFI LOC, and all of the equity interests of the Barclays DIP Borrowers. (PX 76.)
The parties dispute whether, in determining an adequate protection claim based on diminution in value of collateral, the value of the collateral at the Petition Date should be determined by the foreclosure value of the collateral in the hands of the secured creditor (as argued by the Plaintiffs), or by the going concern value of the collateral in the hands of the Debtors (as argued by the Defendants). The legal issue is discussed below in section III.B.3. The Defendants’ expert Mr. Siegert testified that when negotiating the Cash Collateral Order, the parties never discussed that adequate protection and diminution in value of JSN Collateral would be determined using foreclosure value. (Oct. 23 Tr. 195:9-13.) According to Mr. Siegert, that would have been contrary to the spirit of the negotiations, which were aimed at easing the Debtors’ bankruptcy filing. (DX AIJ at 7.)
The Forecasts provided for the pro rata allocation of the cash disbursements during the relevant period to various silos of assets securing the Debtors’ various secured credit facilities, as well as to unencumbered assets. (Puntus Direct ¶26.) The Debtors delivered updated Forecasts to the JSNs and AFI every four weeks as required by the Cash Collateral Order, and, although the JSNs did not have consent rights, at no point during the case did they object to any Forecast. (Id.) The Cash Collateral Order also obligated the Debtors to deliver to the JSNs a 20-week forecast of anticipated cash receipts and disbursements for the 20-week period. (PX 76 at 22.) The Debtors were only permitted to use cash collateral for the “purposes detailed within the Initial 20-Week Forecast and each subsequent Forecast.” (Id. at 23-24.)
The Cash Collateral Order contained a waiver of the Debtors’ right to surcharge against prepetition collateral pursuant to Bankruptcy Code section 506(c). (PX 76 at 42-43.) Specifically, the Cash Collateral Order states that: “[N]o expenses of administration of the Chapter 11 Cases or any future proceeding that may result therefrom, including liquidation in bankruptcy or other proceedings under the Bankruptcy Code, shall be charged against or recovered from the Prepetition Collateral and [Cash] Collateral pursuant to sections 105 or 506(c) of the Bankruptcy Code.... ” (Id.) The Cash Collateral Order also expressly waived the “equities of the case” exception contained in section 552(b) of the Code. (Id. at 35.)
The Debtors negotiated several extensions regarding the use of the cash collateral of AFI and the JSNs, including a stipulation entered on June 28, 2013. (ECF 12-12020 Doc. # 4115.) On July 10, 2013, the Court entered the Stipulation and Order in Respect of the Debtors’ Motion for Entry of an Order to Permit the Debtors to Continue Using Cash Collateral (ECF 12-12020 Doc. #3374) (the “Cash Collateral Stipulation”) among the Debtors, AFI, and the JSNs, which terminated the use of cash collateral effective as of July 11, 2013, with certain limited exceptions. (PX 85 ¶ 2.)
The Debtors also negotiated a “Carve Out” in the Cash Collateral Order (PX 76 *573 at 31- 32.) The Cash Collateral Stipulation served as the Carve Out Notice. No party disputes that a section 506(c) waiver was provided for the benefit of the JSNs. The parties dispute whether the JSNs are entitled to an adequate protection claim for amounts of cash collateral expended by the Debtors consistent with the agreed budget under the Cash Collateral Order. The issue also remains whether the Debtors may use an additional $143 million of the JSNs’ cash collateral covered by the Carve Out in the Cash Collateral Order after the termination of the use of cash collateral where sufficient unencumbered cash is available to make the payments. The issue is addressed below in section III.D.8.
E. Stipulation of Liens under the Cash Collateral Order
In the Cash Collateral Order, the Debtors stipulated that the JSNs’ collateral included, but was not limited to, all categories of assets identified in the “Ally Revolver” and “Blanket” columns on Exhibit A to the Cash Collateral Order. (PTO ¶ 28.) The Debtors further stipulated, pursuant to paragraph 5(g) of the Cash Collateral Order, that security interests granted to the JSNs “are valid, binding, perfected and enforceable priority liens on and security interests in the personal and real property constituting ‘Collateral’ under and as defined in the Junior Secured Note Documents.” (PX 76 at 11-12.) Under the Cash Collateral Order, the “Junior Note Documents” included the JSN Security Agreement, the Notes Indenture, “and all other documents executed in connection therewith.” (Id. at 4) The Defendants contend that, under paragraph 5(g), the Debtors stipulated that the JSNs’ liens extend to all collateral to which a security interest was initially granted, including the AFI LOC Collateral that was previously released by the Third Priority Collateral Agent under the Blanket Release. (PTO JSN Contentions ¶ 18.) The JSNs’ witness, Mr. Siegert — the lead engagement partner for Houlihan Lokey Capital, Inc. (“Houlihan”) — testified that as of the Petition Date, he had no belief that the Debtors’ stipulations in paragraph 5(g) would revive the JSNs’ previously released liens. (Oct. 23 Tr. 102:4-6, 102:19-24, 105:3-25, 115:4-8, 125:12-126:15, 126:23-127:21.) Mr. Siegert explained that if counsel for the JSNs had concluded that paragraph 5(g) would revive more than $1 billion of AFI LOC Collateral, that would have been material information for Houlihan and the Ad Hoc Group to know, as well as a material factor in estimating the value of the JSNs’ liens. (Oct. 23 Tr. 127:25-128:16.) But Houlihan’s May 14, 2012 public presentation (the “May 14 Presentation”) that presented an estimation of the JSNs’ recovery on their prepetition collateral did not incorporate or disclose the existence of the billion dollars of AFI LOC Collateral. (PX 169; Oct. 23 Tr. 128:17-21; 132:18-133:4.) Mr. Siegert testified that if Houli-han had known that paragraph 5(g) revived $1 billion worth of JSNs’ hens, it would have incorporated that fact in the May 14 Presentation. (Oct. 23 Tr. 128:23-133:4.)
Further, in paragraph 5(g), the Debtors stipulated that the JSNs’ liens are “subject and subordinate only” to those prepetition liens that were granted under the Revolver. (PX 76 at 11-12.) But this provision does not subordinate the JSNs’ purported lien on the AFI LOC Collateral to AFI (i.e., the lender). So under the Defendants’ proposed interpretation of paragraph 5(g), the JSNs’ purported liens on the AFI LOC Collateral would be elevated ahead of the AFI’s liens in that same collateral. Additionally, while granting the JSNs a postpetition adequate protection lien on the Revolver Collateral and the *574 AFI LOC Collateral, the Cash Collateral Order subordinated those hens to any existing liens on the same collateral. To that end, with respect to the JSNs’ adequate protection lien on the Revolver Collateral the Order acknowledges that the lien is junior to the “existing liens granted to the Junior Secured Parties.” (Id. at 28.) With respect to AFI LOC Collateral, though, the Cash Collateral Order does not mention the JSNs’ purported existing lien on that collateral. (Id. at 28-29.)
Other documents also indicate that paragraph 5(g) was not intended to revive any previously released JSN liens. For example, in the JSN PSA, the JSNs expressly reserved the right to make a claim for an equitable lien on the AFI LOC Collateral. (PX 252 § 5.6.) That would have been superfluous if the JSNs believed that paragraph 5(g) already granted them a lien on that collateral. Moreover, when the Debtors sought approval of the Barclays DIP Facility, they argued that any asserted equitable JSN lien on the AFI LOC Collateral was invalid and not perfected. (PX 88 at 55.) That position would have been inconsistent with a stipulation granting the JSNs a lien on that collateral in paragraph 5(g). Neither the motion for approval of the use of cash collateral, nor any disclosures to the Court in connection with the interim or final cash collateral orders, disclose that the JSNs believed they were getting a perfected security interest in any previously released collateral.
F. The Asset Sales
On the Petition Date, the Debtors filed motions to approve stalking horse bids from AFI and Nationstar with respect to the Debtors’ Whole Loan Portfolio and Servicing and Origination Assets, respee-tively. (See PX 61.) The Debtors entered into the initial stalking-horse bid with Na-tionstar to sell the servicing, origination, and capital markets platforms (which included people, software, and IT) of the Debtors. (PX 33.) The Debtors also agreed to sell Nationstar contracts, servicing agreements, MSRs owned by the Debtors, certain Ginnie Mae-guaranteed whole loans, and intellectual property, goodwill, and general intangibles “Related to the Business” for $2.3 billion. (Id. at 38-41.)
After the Petition Date, on June 15, 2012, Berkshire Hathaway, Inc. (“Berkshire”) submitted competing bids to become the stalking horse bidder for both sets of assets. (Puntus Direct ¶ 59.) The bids, which were submitted without Berkshire having performed any due diligence, were in the form of executed asset purchase agreements virtually identical to the agreements executed by Nationstar (for the Servicing and Origination Assets) and AFI (for the Whole Loan Portfolio). (Id.) Due, at least in part, to Berkshire’s bids, a “pre-auction” auction (the “Mini Auction”) ensued in advance of and during the sale procedures hearing, with the Court ultimately directing that final proposed stalking horse bids be submitted to the Debtors on June 18, 2012. (Id.) In accordance with the Court’s direction, both Nationstar and Berkshire submitted revised stalking horse bids. (Id.) With the support of the Committee, the Debtors sought and obtained Court approval of the Nationstar and Berkshire stalking horse bids and the bid and sales procedures at a hearing on June 19, 2012. 23 (Id. ¶ 60.)
In the lead-up to the Asset Sales, the Debtors maintained the servicing and orig *575 ination platforms as going concerns. (Maraño Direct ¶¶ 50-51.) The Debtors considered, but rejected, the possibility of liquidation, because, according to Mr. Mar-año, the Debtors did not believe that a liquidation was in the best interests of the creditors, and the Debtors did “everything [they] could” to prevent a foreclosure. (Oct. 15 Tr. 164:10-25.)
1. The Servicing and Origination Assets Sale
The Court approved the sale and bid procedures with respect to the Servicing and Origination Assets (PX 44), and Cen-terview approached those institutions that it believed would have an interest in purchasing, and the financial resources and expertise necessary to purchase, the Servicing and Origination Assets, to gauge their respective interest. (Puntus Direct ¶ 61.) Following these initial contacts and an introductory due diligence period for interested parties, the Debtors’ management team and Centerview made formal presentations to five prospective purchasers, during which they described in detail the Servicing and Origination Assets being sold and afforded them an opportunity to visit the Debtors’ locations and perform detailed on-site due diligence with the Debtors’ business units. (Id.) The Debtors received responses from three potential purchasers: (1) Berkshire, (2) a consortium of two bidders, and (3) a consortium composed of Ocwen and Walter Investment Management Corporation (‘Walter”). (Id. ¶ 63.) The Debtors focused their marketing efforts on these three potential purchasers. (Id.)
On October 19, 2012, the Debtors received two qualifying bids for the Servicing and Origination Assets: (1) the stalking horse bid previously submitted by Nations-tar at a value of $2.357 billion; and (2) a bid from Ocwen and Walter at a value of $2.397 billion. (PX 48; PX 47.) The Debtors determined that the Ocwen bid was the highest and best bid for the Servicing and Origination Assets and decided that they would open the auction with the Ocwen bid. (Puntus Direct ¶ 64; PTO ¶ 34.) On October 23, 2012, the Debtors began the auction for the Servicing and Origination Assets with Ocwen’s bid as the opening bid. Two bidders, Nationstar and Ocwen, submitted offers for these assets. Although Ocwen was a bidder of record for these assets, the Ocwen APA provided for the assignment of the Debtors’ Fannie Mae assets to Walter. (PX 47; Puntus Direct ¶ 69.)
During the auction, the Debtors negotiated with Nationstar and Ocwen to obtain certain adjustments to their bids and asset purchase agreements. As required by Ginnie Mae, both bidders agreed to remove the Ginnie Mae liability bifurcation condition in the asset purchase agreements. (Puntus Direct ¶ 71.) Consequently, Ginnie Mae would be able to seek satisfaction of all liabilities relating to Ginnie Mae loans, either pre- or post-closing, related to servicing or origination, from the purchaser of the Servicing and Origination Assets. (Id.) Also, although both Ocwen’s and Nationstar’s bid did not contractually obligate them to acquire the servicing and origination platforms, both bidders agreed to include a commitment to acquire the platforms and associated liabilities as part of the bid. (Puntus Direct ¶ 72; Maraño Direct ¶ 62.) To induce Ocwen and Na-tionstar to make this commitment, the Debtors offered the bidders a bid credit in the amount of $108.4 million, which represented the estimated liabilities associated with the platforms. (PX 56 at 37-41; Pun-tus Direct ¶ 72.) After 28 rounds of bidding, Ocwen made the highest and best offer to purchase the Debtors’ Servicing and Origination Assets for itself and Walter, with a winning purchase price of ap *576 proximately $3 billion. (PX 57 at 9-10.) The Court approved the Ocwen Sale on November 19, 2012, and entered an Order approving the asset sales on November 21, 2012. (PX 45; Puntus Direct ¶ 79; PTO ¶ 36.)
The parties effectuated the Ocwen Sale through the Ocwen APA, dated as of November 2, 2012 (and as later amended), among Ocwen, ResCap, and certain other Debtor signatories. (PX 19; PX 20; PX 21; PX 22; PX 23; PX 24; PTO ¶ 37.) The Ocwen APA provided that Ocwen was buying “goodwill and other intangible assets Related to the Business or related to the Purchased Assets.” (DXPT at 41.) In total, over 2,000 ResCap employees, including those associated with call centers and management, were “migrat[ed]” to Ocwen as part of the purchase of ResCap’s servicing and origination platform with no significant reduction in personnel. (Zieg-enfuse Dep. 63:16-19:6, 65:7-21, 67:17-23.)
In the APA, Ocwen attributed zero value to goodwill and intangibles, but in a subsequent 10-Q filing, the company attributed approximately $210 million to those assets. (DX ZH at 30.) The APA contains a provision that any purchase price allocation in the APA would only bind the parties for tax purposes, and not for any other purpose. (PX 19 at 50.) The parties dispute whether a portion of the purchase price must be allocated to general intangibles and goodwill, as to which the JSNs claim to have a perfected lien.
¡2. The Whole Loan Portfolio Sale
Contemporaneously with the marketing process for the Servicing and Origination Assets, Centerview considered those institutions that it believed would be interested in and financially capable of purchasing the Whole Loan Portfolio. (Puntus Direct ¶ 65.) Centerview approached those potential purchasers to gauge their respective interest. (Id.) On October 19, 2012, the bid deadline approved by the Court, the Debtors received two qualifying bids for the Whole Loan Portfolio: (1) the stalking horse bid previously submitted by Berkshire at a value of $1.324 billion; and (2) a bid from a consortium of four financial bidders led by DLJ Mortgage Capital (the “DLJ Consortium”) at a value of $1.339 billion. (Id. ¶ 66) The Debtors determined that the DLJ Consortium bid was the highest and best bid for the Whole Loan Portfolio and decided that they would open the auction with the DLJ Consortium bid. (Id.; PTO ¶ 35.)
On October 25, 2012, ResCap held an auction for its Whole Loan Portfolio. (Puntus Direct ¶ 79.) After 11 rounds of bidding, Berkshire won the auction with the highest and best offer of $1.5 billion, an amount $175 million higher than the original stalking horse bid. (Id.) PX 58 at 22-23.) Before the auction, Berkshire had agreed to continue compliance with certain aspects of the FRB Consent Order and the DOJ/AG Settlement. (Puntus Direct ¶ 79.) The Court approved the Berkshire sale on November 19, 2012, and entered an order approving the asset sales on November 21, 2012. (ECF 12-12020 Doc. #2247; PX 46.)
G. Facts related to Original Issue Discount
The Junior Secured Notes were issued in connection with a 2008 debt-for-debt exchange offering (the “Exchange”). On May 5, 2008, ResCap issued an Offering Memorandum in which it offered to exchange $9.537 billion face value amount of its then-outstanding unsecured notes maturing from 2010 through 2015 (the “Old Notes”) for the Junior Secured Notes. (PTO ¶ 7; PX 175.) Under the Exchange, ResCap offered to exchange $1,000 face principal amount of outstanding unsecured notes for $800 face value of Junior Secured *577 Notes. (PTO ¶ 8.) Pursuant to a modified Dutch Auction, the clearing price was $650 per $1,000 principal amount of Junior Secured Notes, which was the lowest level at which tenders were accepted. (Id.) Through the Exchange, ResCap exchanged approximately $6 billion of Old Notes for approximately $4 billion in Junior Secured Notes and $500 million in cash. Approximately 63% of the Old Notes were exchanged in the Exchange. (Id. ¶ 9.) The issue price of the Junior Secured Notes was established as $613.75 based on trading activity from the first day of trading. Using this price, AFI calculated the amount of OID for tax purposes as of the Petition Date to be $377,262,728. (Id. ¶ 52; PX 189; Finnerty Direct ¶ 55.) As an economic matter the Exchange created OID. (Finnerty Direct ¶ 10.) AFI amortized the OID by compounding it on a semi-annual basis. Amortizing OID on a daily compounding basis results in a slightly larger amount of OID: $386 million. (Id. ¶ 60.)
The Plaintiffs argue that the OID should be disallowed in bankruptcy as unmatured interest. The Defendants, on the other hand, argue that the OID should be allowed as part of their claim based on Second Circuit precedent. The Plaintiffs and Defendants each offered expert testimony on issues relating to the bankruptcy treatment of the OID generated in the Exchange. John D. Finnerty, Ph.D., a Managing Director in the Financial Advisory Services Group at AlixPartners, LLP and Professor of Finance at Fordham University’s Graduate School of Business Administration, testified on behalf of the Plaintiffs, and Mr. Siegert testified on behalf of the Defendants.
The parties do not dispute that the Exchange was a “fair value” exchange — i.e., that old securities were exchanged for new securities with a reduced principal amount that in theory approximated the market value of the old securities. The Second Circuit’s decision in LTV Corp. v. Valley Fidelity Bank & Trust Co. (In re Chateaugay Corp.), 961 F.2d 378 (2d Cir.1992), addressed the bankruptcy treatment of OID generated in connection with a “face value” exchange — i.e., one in which the principal amount of the debt is not reduced. 24 (Finnerty Direct ¶ 102; Oct. 21 Tr. 151:11-14.) The experts also agreed that investors in the Notes were sophisticated investors who understood how to analyze risks associated with investing in OID bonds. (Finnerty Direct ¶ 92; Oct. 21 Tr. 184:8-11.)
In addition, Dr. Finnerty calculated that using semi-annual compounding, $377 million in OID remained unamortized as of the Petition Date. (Finnerty Direct, App’x 6A.) Dr. Finnerty, though, believed that daily compounding was the more appropriate method, which he calculated to yield $386 million of unamortized OID as of the Petition Date. (Id. at App’x 6B.) Mr. Sie-gert, on the other hand, testified that he believed that semi-annual compounding *578 was the best method. (See Oct. 21 Tr. 163:21-25.)
Dr. Finnerty stressed the economic incentives built into the Exchange: yield, security, and seniority. (Finnerty Direct ¶ 62.) In addition, the Exchange allowed ResCap to reduce its overall debt obligations and extend its debt maturities, thereby enhancing the credit strength of the JSNs’ obligor, allowing ResCap to avoid bankruptcy for four more years. (Id.) In fact, the JSNs will achieve a greater recovery than the noteholders who did not exchange and whose notes remained outstanding on the Petition Date. The Debtors Disclosure Statement (ECF 12-12020 Doc. # 4811) indicates that while the hold-outs have retained a $1,000 par amount unsecured claim, they are projected to recover only 36.3%, or $363.00. (Fin-nerty Direct ¶ 88.) In contrast, the holders of the JSNs, who received $800 of new secured notes in June 2008, are projected to recover $840. (Id.) The Exchange was attractive — and future exchanges could likewise be attractive regardless of the bankruptcy treatment of OID — because of the competitive effective yield of the Junior Secured Notes at issuance, the fact that the Junior Secured Notes, unlike the Old Notes, were secured, and the fact that the Junior Secured Notes were structurally senior to the Old Notes. (Id. ¶¶ 62-67, 93.)
Mr. Siegert, in contrast, testified, among other things, that: (1) the disclosures made by ResCap in the Exchange, along with general market evidence, are inconsistent with the conclusion that the Exchange generated disallowable OID for bankruptcy purposes; and (2) disallowing OID in fair value exchanges such as the Exchange would likely cause debt-holders to either reject such exchanges or demand more from distressed companies, thereby discouraging out-of-court workouts and leading to a greater number of bankruptcies. (Siegert Direct ¶ 30.) Mr. Siegert noted that the disclosures did not warn that the Exchange could create OID that would be disallowed in bankruptcy. (Id. ¶ 31.) Mr. Siegert also testified that the market did not place much value on the structural enhancements to the Notes that the Exchange created since 63% of note-holders participated in the Exchange, which was a lower participation rate than typical debt-for-debt exchanges. (Id. ¶ 32.) ResCap was expecting a significantly higher level of participation in the Exchange; the company and its advisors originally projected a base case participation level of 76%. (See Hall Dep. 53:10-21.)
If ResCap had not executed the Exchange, the Company would not have had an ability to meet its debt service obligations as they came due without some third party intervention. (Hall Dep. 43:10-16.) The successful completion of the Exchange enhanced shareholder value by reducing the amount of the Company’s outstanding debt. (Hall Dep. 55:14-23; Oct. 21 Tr. 64:5-8; 64:25-65:2.) The successful completion of the Exchange also provided ResCap, its creditors, and other stakeholders with several other valuable benefits, including reducing ResCap’s debt service and extending the maturities on ResCap’s outstanding debt. (DX BB at 13; Oct. 21 Tr. 18:10-14; 63:6-15; 64:5-8.)
Both experts testified that there is little difference between a face value exchange and a fair value exchange, making disparate treatment for the two exchanges in bankruptcy economically illogical. (Sie-gert Direct ¶ 37; Oct. 21 Tr. 67:10-69:9.) Mr. Siegert explained that both fair and face value exchanges offer companies the opportunity to restructure out-of-court, avoiding the time and costs- — -both direct *579 and indirect — of a bankruptcy proceeding. (DX AIJ at 7.)
The Second Circuit treats OID created by face value exchanges as allowable in bankruptcy, despite the Code’s provision that unmatured interest is disallowed. See Chateaugay, 961 F.2d at 384 . The Cha-teaugay decision left open the possibility that fair value exchanges could be treated differently, but it did not resolve the issue. Both Dr. Finnerty and Mr. Siegert acknowledged that under Chateaugay, there would be no disallowable OID here if the Junior Secured Notes were issued at 100% face value, and all other inducements for participation remained the same. (Oct. 21 Tr. 136:9-20; 214:2-4.) Dr. Finnerty and Mr. Siegert also both acknowledged that if creditors knew that OID created in fair value exchanges would be disallowed, distressed issuers would need to offer greater incentives to participate. (Siegert Direct ¶ 3 8; DX ABC; Oct. 21 Tr. 101:15-17.) According to Mr. Siegert, this would make distressed debt exchanges more difficult and would likely lead to more bankruptcy filings as opposed to out-of-court workouts. Additionally, bondholders could simply reject fair value exchanges altogether. (Sie-gert Direct ¶ 3 8.) The experts also both testified that they are unaware of any other creditors whose claim would be determined in bankruptcy based on the trading prices of bonds used to determine the issue price. (DX AIJ 10; Oct. 21 Tr. 23:20-24:2.) Thus, a holder of the Old Notes would not know the amount of OID that would be disallowed in bankruptcy before tendering. (Oct. 21 Tr. 50:24-51:21.) The legal analysis of OID is found in section III.A below.
H. The Paydowns
On or about June 13, 2013, the Debtors made a payment in the amount of $800 million on account of the outstanding principal of the Junior Secured Notes. {See ECF Doc. # 3967.) On or about July 30, 2013, the Debtors made an additional $300 million payment on account of the outstanding principal of the Junior Secured Notes. {See ECF Doc. # 4404.) Together these repayments reduced the outstanding principal balance by $1.1 billion.
I. Expert Valuations of JSN Collateral on Petition Date
The JSNs offered valuation testimony from four proposed experts affiliated with Houlihan: Messers. Fazio, Levine, Taylor, and Siegert. Mr. Fazio offered opinions on the Petition Date value of the Debtors’ sold and unsold HFS assets and certain other unsold assets. (Fazio Direct ¶¶ 2-3; Oct. 22 Tr. 122:10-13.) He also offered an opinion on the Petition Date value of a hypothetical entity consisting solely of the Debtors’ MSRs, servicing operations, and originations platform. (Fazio Direct ¶¶ 2, 7; Oct. 22 Tr. 122:14-16.) Mr. Levine offered opinions on the Petition Date value of the Debtors’ MSRs, refinancing opportunities associated with the MSRs, and Servicing Advances. (Levine Direct ¶ 2.) Mr. Taylor offered an opinion on the allocation of value to certain assets associated with the Ocwen asset sale, including intangible assets, goodwill, and liabilities acquired by Ocwen and Walter. (Taylor Direct ¶¶ 2-3, 7.)
Mr. Siegert offered a single “Global Summary” of these Houlihan opinions suggesting the net fair market value of the JSN Collateral on the Petition Date totaled $2.79 billion. (Siegert Direct ¶¶ 4, 25; Oct. 23 Tr. 134:1-14, 141:14-142:6; DX ABF at 10.) He arrived at this value by first summing (1) the valuations of the Debtors’ cash, HFS assets, unsold servicing advances, FHA/VA loans, equity interests, hedge contracts, and certain other contracts; (2) the valuation of the Debtors’ *580 sold servicing advances; and (3) his own valuation of the Debtors’ intangible assets, derived from his own analysis of Messrs. Fazio, Taylor, and Levine’s valuations. (DX ABF at 9-10.) This totaled $4,450 billion. (Id. at 10.) Mr. Siegert then subtracted $747 million owed to Ally on the Ally Revolver, and $912 million owed on two facilities, 25 to reach $2,791 billion. (Siegert Direct ¶ 25 & n. 6; DX ABF at 10.)
The Houlihan experts’ valuation assumes that the assets could have been sold on the Petition Date by the Debtors. (Oct. 22 Tr. 139:18-142:4; Oct. 23 Tr. 147:23-149:3, 149:18-22.) But when valuing the assets, the Defendants’ experts did not look to sales conducted by other distressed entities on the brink of insolvency; rather, the experts treated ResCap as a solvent seller able to capture fair value for its assets.
The Plaintiffs, on the other hand, offered the opinion of Mr. Puntus, Partner and Co-Head of the Restructuring Group at Centerview. Mr. Puntus has been the lead investment banker for the Debtors for over two years. (Puntus Direct ¶ 1, 16; Oct. 16 Tr. 98:9-16.) He was heavily involved in the Debtors’ decision to market their assets, the prepetition marketing process and the postpetition sale process, serving as the lead business negotiator for the Debtors on the stalking horse agreements as well as the auction process. (Oct. 16 Tr. 97:23-98:16,103:6-9.)
Mr. Puntus used the initial Nationstar and AFI stalking horse agreements to determine the benchmark value in his analysis ($1,736 billion), even though these agreements were never consummated. He also endeavored to estimate what the JSNs’ Collateral would have been worth upon foreclosure, where the disposition of the assets would have been controlled, in the first instance, by the First Priority Collateral Agent (directed by AFI) or the lenders (ie., Barclays and AFI for GSAP and BMMZ, respectively).
Mr. Puntus’s benchmark did not represent his opinion of the value of the JSNs’ Collateral for purposes of adequate protection because the purchase prices reflected in the stalking horse deals were contingent upon the continued operation of the Debtors’ business in chapter 11 (Oct. 16 Tr. 103:10-22.) To estimate the value of the JSNs’ Collateral as of the Petition Date in the hands of the creditors’ agents upon foreclosure, Mr. Puntus therefore made certain downward adjustments from his benchmark valuation. Mr. Puntus based these adjustments on two alternative scenarios, differing in how long he assumed the creditors would take to dispose of the collateral: “Alternative A” assumed the collateral would be monetized by the collateral agents over a three to four month time period ($1,474 billion), while “Alternative B” assumed a five to six-month period ($1,594 billion). (Puntus Direct, ¶¶ 86-88.) Mr. Puntus further made reductions to account for RMBS and government set off risks, which reduced the “Alternative A” valuation to $1,046 billion, and the “Alternative B” valuation to $1.13 5 billion. (Puntus Direct Ex. 1 at 9.)
Mr. Puntus’s methodology was dependent upon his subjective valuations of risks associated with the collateral. At trial, Mr. Puntus conceded that he had never seen a valuation analysis relying on similar methodology before. (Oct. 16 Tr. 36:6-8.) Nor is it likely that Mr. Puntus’s valuation methodology could be used in other con *581 texts. While Mr. Puntus’s methodology is unsupportable, the numbers he reached may well be closer to the actual value of the JSN Collateral on the Petition Date.
J. Effective Date Value of JSN Collateral
The parties agree to a value of $1.88 billion as the baseline valuation for the JSNs’ collateral as of December 15, 2013 (the assumed “Effective Date”), but the Debtors contend that only $1.75 billion of that collateral is properly distributable to the JSNs. The Plaintiffs seek to reduce the JSNs’ potential recovery by assessing $143 million of expenses under the Carve Out against the JSN Collateral. The Plaintiffs argue that the Cash Collateral Order expressly made the JSNs’ liens subordinate to the Carve Out. The Defendants countered that the Plaintiffs should use unencumbered cash to pay the Carve Out rather than JSN cash collateral.
1. Deposit Accounts
Except for the Controlled Accounts (defined below), the Deposit Accounts listed on Schedule 5 to the Committee Action are not subject to an executed control agreement among the relevant Debtor, the Third Priority Collateral Agent, and the bank where such Deposit Accounts are maintained. (PX 126; Landy Direct ¶¶ 3(d), 24(a), 40.) The uncontroverted evidence at trial established that, as of the Petition Date, the Deposit Accounts held funds in the amount of $48,502,829. (Lan-dy Direct ¶ 41.)
Executed control agreements were admitted into evidence for the following Deposit Accounts (collectively, the “Controlled Accounts”): Account Nos. xxxx7570, xxx6190, xxx8567, xxxx7618, xxxx2763, and xxxx0593. (See DX AIU; DX AIV; DX AIW; DX AIX; DX AIY; DX AIZ.) As of the Petition Date, the Controlled Accounts held an aggregate amount of $16,885. (PX 126.) Deposit Account Nos. xxxx2607, xxxx7877, and xxxxll76 (collectively, the “WF Accounts”) are maintained at Wells Fargo, which is the Third Priority Collateral Agent. The WF Accounts contained $38,321 as of the Petition Date. (PX 126.)
Deposit Account Nos. xxxx3803 and xxxx6323 (together, the “Ally Accounts”) are maintained at Ally Bank, which is an indirect, wholly-owned subsidiary of the AFI, the Revolver Lender. (PTO JSN Contentions ¶ 103.) Ally Bank is not a party to the Junior Notes Documents, the Revolver Documents or the Intercreditor Agreement and is therefore not a “secured party” within the meaning of the U.C.C. for purposes of control and perfection. Further, the Third Priority Secured Parties are not perfected by virtue of the Revolver Lender and Ally Bank being affiliates. First, given that they are not the same entity, the Revolver Lender’s lien is not perfected under the U.C.C. through automatic control. Second, even if AFI’s lien were perfected through automatic control, that would be the case only with respect to its own security interest (under the Revolver).
Deposit Account No. xxxx2599, which is maintained at J.P. Morgan Chase Bank, N.A. and contained $8,091 as of the Petition Date, contains proceeds of the JSN Collateral (the “Proceeds Account”). (Oct. 17 Tr. 173:4-174:11; PX 6 at 18-19.) The Court finds that the Third Priority Secured Parties have a perfected interest in that account under the U.C.C. because it contains proceeds of JSN Collateral. The Defendants failed to proffer evidence at trial that any of the Deposit Accounts other than the Proceeds Account contain proceeds of the JSN Collateral.
2. Real Property
Various Debtors owned the real property and leasehold interests listed on Sched *582 ule 2 to the Committee Action, and that portion of Schedule 6 to the Committee Action that identifies REO properties (ie., mortgaged properties acquired through foreclosure or other exercise of remedies under mortgages or deeds of trust that secured the associated mortgage loan instruments) as of the Petition Date. The property and leasehold interests are not subject to either a mortgage or a deed of trust in favor of the Third Priority Collateral Agent (the “Unencumbered Real Property”). (PX 124; PX 127 at 44-47; Landy Direct ¶¶ 3(b), 24(b), 36; Oct. 17 Tr. 175:1-23.) The uncontroverted evidence at trial established that, as of the Petition Date, the fair market value of the Unencumbered Real Property was $21 million. (Landy Direct ¶ 38.)
The Third Priority Collateral Agent did not know whether it had received any mortgage or deed of trust with respect to the Unencumbered Real Property, nor did it know whether any property owner ever granted or signed a mortgage or deed of trust with respect to the Unencumbered Real Property. (Pinzón Dep. 24:7-11, 29:2-11.) No mortgage or deed of trust for the Unencumbered Real Property was proffered by any party or admitted into evidence during the trial. (Landy Direct ¶ 37.)
The JSNs, therefore, do not have a perfected security interest in or lien on any of the Unencumbered Real Property because that property was not subject to an executed and filed mortgage or deed of trust.
S. Executive Trustee Services, LLC and Equity Investment I, LLC Assets
The Plaintiffs argue that the JSNs do not have liens on assets of Executive Trustee Services, LLC (“ETS”) and Equity Investment I, LLC (“Equity I”). According to the Plaintiffs, ETS pledged all of its assets to the Revolver in February 2011, but did not pledge any assets to the JSNs. The Plaintiffs also claim that any security interest in Equity I was released on December 29, 2009.
On February 16, 2011, ETS executed a joinder to the Revolver Documents and pledged all of its assets to AFI under the Revolver as a guarantor. Neither the Debtors nor the JSNs have identified a similar joinder agreement whereby ETS became an obligor under any of the Notes Agreements or granted any security interest to the Noteholders. The JSNs have argued that Section 4.17 of the Notes Indenture and Section 2.3(c) of the Inter-creditor Agreement dictate that ETS is a guarantor of the Junior Secured Notes. Section 4.17 of the Notes Indenture provides the process by which future guarantors execute supplemental indentures guaranteeing the Junior Secured Notes, and Section 2.3(c) of the Intercreditor Agreement provides that any party pledging assets to the Revolver must also pledge such assets to the JSNs. (PX 1 at 59-60; PX 2 at 17.) But these provisions are not self-effectuating, and ETS was not a party to the Intercreditor Agreement. Absent an indication that ETS actually did pledge assets to the JSNs, the JSNs cannot establish a lien on any ETS assets.
As for Equity I, that entity was an obligor under the Original Revolver Loan Agreement and the Original JSN Security Agreement, but it was removed as an obli-gor in the amended versions of those agreements. (PX 3; PX 4; PX 5; PX 6; PX 7; PX 8.) Further, On December 29, 2009, the Third Priority Collateral Agent executed a U.C.C.-3 termination statement terminating the security interest in all assets pledged by Equity I. (PX 131 at 841-45.) The next day, the parties executed the amended JSN Security Agreement that removed Equity I as an obligor. (PX 4.) Also on December 30, 2009, Equity I became a guarantor under the AFI LOC. *583 (PX 9.) The JSNs therefore do not have a lien on any Equity I assets.
A Reacquired Mortgage Loans
Count IV of the Committee’ complaint alleges that the JSNs do not have perfected security interests in certain mortgage loans that were (1) released from the JSNs’ liens and security interests in May 2010 to be sold to certain Citi and Goldman Repurchase Agreement Facilities (“Repo Facilities”), and (2) subsequently repurchased by the Debtors between September 2010 and the Petition Date (the “Reacquired Mortgage Loans”). As of the Petition Date, the Debtors owned the Reacquired Mortgage Loans, which were coded as “Blanket Lien Collateral” in the CFDR. The Debtors repurchased the majority of the Reacquired Mortgage Loans in January 2012. (See DX ABM, Schedule 1.) The Committee’s complaint alleges that the Reacquired Mortgage Loans total approximately $14 million at book value and $10 million at fair value. (PX 125; PX 241 at 9.)
Wells Fargo, acting in its capacity as the Third Priority Collateral Agent, filed U.C.C.-3 financing statement amendments in May 2010 terminating the JSNs’ security interests in, among other things, loans that later became the Reacquired Mortgage Loans. (See, e.g., PX 133; PX 136.) Those U.C.C.-3 amendments made clear that the assets that were subject to the release were being sold to Repo Facilities by expressly referencing the Repo Facilities and identifying the assets subject to the U.C.C.-3 amendments as the Mortgage Loans listed on certain Schedules to the Repo Facilities. (See, e.g., PX 133; PX 136.) The loans listed on the U.C.C.-3 amendment were within the scope of and were covered by preexisting U.C.C.-l financing statements. The U.C.C.-3 amendments provided notice of a collateral change, not a termination of the effectiveness of the identified financing statement. (See, e.g., PX 133; PX 136.)
The U.C.C.-l financing statements, which remained in effect notwithstanding the filing of the U.C.C.-3 financing statements, continued in force and operated to perfect the JSNs’ security interests in the Reacquired Mortgage Loans after the Debtors repurchased those loans. (See, e.g., PX 132; PX 4 § 2.) The U.C.C.-l financing statements and U.C.C.-3 amendments filed by Wells Fargo provided notice to any potential lender seeking to obtain a security interest in the Reacquired Mortgage Loans of the possibility that the JSNs held a perfected security interest therein. Any potential lender inquiring about the collateral (1) could learn that the Reacquired Mortgage Loans had been reacquired by the Debtors subsequent to the filing of the U.C.C.-3 amendments (by virtue of the fact that they were owned by the Debtors); and (2) would have access to the U.C.C.-l financing statements providing that the JSNs held a perfected security interest in all assets that the Debtors subsequently acquired. (Oct. 23 Tr. 36:5— 37:19.)
Had any actual or potential unsecured creditor inquired of ResCap into the status of the Reacquired Mortgage Loans prepet-ition, that creditor would have learned that the loans were once again subject to AFI’s and the JSNs’ Blanket Lien, which was reflected in the CFDR. (See Farley Dep. 95:3-14, 110:5-111:14, 115:4-14, 137:21-24, 138:4-11, 176:21-177:3, Oct. 16 Tr. 190:21-192:18; Hall Dep. 117:6-12; Ruhlin Dep. 65:19-22, 66:6-21, 106:8-12, 119:4-9, 155:16-156:2,156:15-21.)
Therefore, the Court finds that the Reacquired Mortgage Loans are properly treated as collateral for the JSNs at the Petition Date.
*584
5. Excluded Assets
Count I of the Committee’s complaint alleges that, pursuant to the JSN Security-Agreement, the JSNs do not have perfected security interests in assets that were (1) pledged to a Bilateral Facility (as defined by the JSN Security Agreement) on the date that the Junior Secured Notes were issued by ResCap, (2) subsequently released from the applicable Bilateral Facility prior to May 14, 2012 (the “Petition Date”), and (3) owned by the Debtors on the Petition Date and coded as “Blanket Lien Collateral” (the “Former Bilateral Facilities Collateral”). 26 The Plaintiffs’ expert Mr. Landy valued the Former Bilateral Facilities Collateral at $24 million as of the Petition Date using fair market valuation. (See PX 241 at 9.)
On June 6, 2008, Wells Fargo, acting in its capacity as the Third Priority Collateral Agent, filed U.C.C.-l financing statements indicating that the JSNs held a security interest in “[a]ll assets [of each grantor] now owned or hereafter acquired and wherever located.” (PX 132.) Section 2 of the JSN Security Agreement (the “All-Assets Granting Clause”) reaches all of the Debtors’ assets that are legally and practicably available both at the time, and after, the JSN Security Agreement was executed. (PX 4 at 4-17, 18-19 (providing that the pledge includes assets “whether now or hereafter existing, owned or acquired and wherever located and howsoever created, arising or evidenced”).)
The JSN Security Agreement carves out from the JSNs’ Collateral certain assets (the “Excluded Assets”) that could not be pledged to the JSNs for legal or business reasons. (PX 4 at 15-17 (“provided that, notwithstanding the foregoing, the ‘Collateral’ described in this Section 2 shall not include Excluded Assets.”).) “Excluded Assets” are defined under the JSN Security Agreement as “(e) any asset ... to the extent that the grant of a security interest therein would ... provide any party thereto with a right of termination or default with respect ... to any Bilateral Facility to which such asset is subject as of the Issue Date [ (June 6, 2008) ].” (PX 4 at 4-15.) The Excluded Assets category included assets pledged to Bilateral Facilities as of the Issue Date, because the terms of the Bilateral Facilities precluded those assets from being pledged to the AFI Revolver or the JSNs. (Oct. 16 Tr. 184:24-185:3.)
The Court previously ruled that the JSN Security Agreement is ambiguous with respect to “whether an Excluded Asset becomes part of the Secured Parties’ collateral pursuant to the All-Asset Granting Clause once it ceases to constitute an Excluded Asset.” Residential Capital, 495 B.R. at 262 . The Court therefore allowed the parties to present extrinsic evidence to determine the parties’ intended meaning.
Ms. Farley, the Senior Director of Asset Disposition for ResCap, was involved in negotiating and implementing the Revolver. She testified that she understood that if the Bilateral Facilities had not precluded the Debtors’ assets pledged thereunder from being pledged to AFI and the JSNs, and if those assets otherwise fell within the broad scope of the Blanket Lien, then the Debtors would have included those assets as Revolver and JSN Collateral. (Oct. 16 Tr. 184:24-185:12; Farley Dep. 26:7-18, 58:12-20, 65:13-66:2, 71:5-18.) She also testified that AFI and ResCap understood that the Excluded Assets would change over time. (Oct. 16 Tr. 182:13-21.)
Lara Hall of AFI testified at her deposition that:
*585 • “AFI’s intent was as soon as the assets rolled off the bilateral facility, they would become subject to the blanket lien.” (Hall Dep. 123:19-23; see also id. 119:7-15);
• at the time the original AFI Revolver and Revolver Security Agreement were negotiated, in exchange for funding the AFI Revolver, AFI was “trying to secure whatever remained unencumbered that we could, that was legally available to be pledged, not an excluded asset and was operationally feasible for the company, being Res-Cap.” (Hall Dep. 106:2-20; 113:2-13); and
• “[t]he blanket lien basically suggested that anytime an asset became uncovered, it would be subject to the blanket lien.” (Hall Dep. 116:6-14.)
Joseph Ruhlin, the Debtors’ former Treasurer, testified that the Debtors understood that the Former Bilateral Facilities Collateral “would be covered by the blanket lien as long as they ... were owned [by the Debtors] and not pledged elsewhere to another bilateral facility,” and that the Debtors’ “understanding” was that “once an asset was released from a funding facility, depending on the asset, it would become part of the blanket lien.” (Ruhlin Dep. 89:14-2, 93:8-14,165:5-9.)
Ms. Farley, in her capacity as the Debtors’ corporate representative, admitted at her deposition that if a loan was initially excluded from the collateral pool because it was pledged to a Bilateral Facility as of the Issue Date, the loan would be transferred into the pool of Blanket Lien Collateral if and when that Bilateral Facility subsequently terminated. (Farley Dep. 105:17-106:21.) At trial, Ms. Farley testified that, with respect to assets that were Excluded Assets as of June 2008 (because they were pledged under a Bilateral Facility), those assets would become part of the revolver and JSN Collateral pools if they fell within the scope of the security grant when the Bilateral Facility terminated. (Oct. 16 Tr. 186:23-187:9.) Ms. Farley further testified that, in negotiating the terms of the AFI revolver, Ally sought to secure the revolver with as much collateral as possible. (Farley Dep. 45:21-46:4; Farley Direct ¶ 13.)
Additionally, in December 2008, the Debtors’ outside counsel sent an email explaining that “if at any point while owned by GMAC [ ] the assets are removed from a Bilateral Facility, the [AFI] Revolver and [JSN] Indenture hens may cover these assets and they will constitute Collateral (if and to the extent Sections 9-406/8 of the U.C.C. are applicable).” (DX ES at 1.)
Given the extrinsic evidence presented at trial about the parties’ intent “whether an Excluded Asset becomes part of the Secured Parties’ collateral pursuant to the All-Asset Granting Clause once it ceases to constitute an Excluded Asset,” the Court is satisfied that the Former Bilateral Facilities Collateral is properly treated as JSN Collateral at the Petition Date.
III. CONCLUSIONS OF LAW
A. The JSNs Are Entitled to Recover All Original Issue Discount.
The Plaintiffs ask the Court to disallow a portion of the JSNs’ claim to the extent the claim seeks recovery of unamor-tized OID. OID is a form of “deferred interest” created when a bond is issued for less than the face value the borrower contracts to pay at maturity. (Finnerty Direct ¶ 10.) Unlike the more common periodic cash interest “coupon” payments made to noteholders, OID interest accretes over the life of the note but is payable only at maturity. (Id.) OID is amortized for tax and accounting purposes over the life of the bond. The Exchange Offer, which was a fair value exchange (see supra at *586 II.F), created $1,549 billion of OID, which amortized over the life of the Junior Secured Notes. (Id. at ¶ 11.) As of the Petition Date, unamortized OID on the remaining outstanding Junior Secured Notes was $386 million. 27 (Id.)
The JSNs contend that their claim should be allowed in full and should not be reduced by any OID. For the following reasons, the Court agrees that the JSNs’ claim should not be reduced by the amount of unamortized OID.
1. In re Chateaugay Controls and Supports Allowing the JSNs’
Claim in Full.
Bankruptcy Code Section 502(b)(2) provides that a creditor’s claim should be allowed in full, “except to the extent that ... such claim is for unmatured interest.” 11 U.S.C. § 502 (b)(2). The Second Circuit ruled in Chateaugay that unamortized OID is “unmatured interest” within the meaning of section 502(b)(2). 961 F.2d at 380 . Nevertheless, the Second Circuit found that debt-for-debt “face value” exchanges offered as part of a consensual workout do not generate OID that is disal-lowable as unmatured interest for purposes of section 502(b)(2). Id. at 383 .
The Second Circuit explained that “application ... of OID to exchange offers ... does not make sense if one takes into account the strong bankruptcy policy in favor of the speedy, inexpensive, negotiated resolution of disputes, that is an out-of-court or common law composition.” Id. at 382 . The Second Circuit explained further:
If unamortized OID is unallowable in bankruptcy, and if exchanging debt increases the amount of OID, then creditors will be disinclined to cooperate in a consensual workout that might otherwise have rescued a borrower from the precipice of bankruptcy. We must consider the ramifications of a rule that places a creditor in the position of choosing whether to cooperate with a struggling debtor, when such cooperation might make the creditor’s claims in the event of bankruptcy smaller than they would have been had the creditor refused to cooperate. The bankruptcy court’s ruling [excluding OID recovery] places creditors in just such a position, and unreversed would likely result in fewer out-of-court debt exchanges and more Chapter 11 filings.
Id.
Applying that reasoning, the Second Circuit held “that a face value exchange of debt obligations in a consensual workout does not, for purposes of section 502(b)(2), generate new OID.” Id. Rather than “changing] the character of the underlying debt,” a face value exchange “reaffirms and modifies” the debt. Id. But the court specifically left open whether the same rules should apply to a fair value exchange such as the one in this case. The court stated:
[Disallowing OID recovery] might make sense in the context of a fair market value exchange, where the corporation’s overall debt obligations are reduced. In a face value exchange such as LTV’s, however, it is unsupportable.
Id.
Here, in ruling on the motions to dismiss, the Court concluded that it would benefit from a fuller evidentiary record before resolving whether as a matter of law the Exchange generated disallowable *587 OID. Residential Capital, 495 B.R. at 266 . Now having the benefit of a full record and argument, the Court concludes that despite the differences between face value and fair value debt-exchanges, the same rule on disallowance of OID should apply in both circumstances. Since Chateaugay is the law of the Circuit, and holds that un-amortized OID should not be disallowed in the case of a face value exchange, the Court concludes that the unamortized OID generated by the fair value exchange here should not be disallowed from the JSNs’ claim.
2. The Legislative History of Section 502(b)(2)
Section 502(b)(2) was enacted in 1978. The legislative history states that disallowed interest shall include “any portion of prepaid interest that represents an original discounting of the claim [but] would not have been earned on the date of bankruptcy,” and gives as an example: “postpe-tition interest that is not yet due and payable, and any portion of prepaid interest that represents an original discounting of the claim, yet that would not have been earned on the date of the bankruptcy.” H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 352-54 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6308.
At the time that Congress passed section 502(b)(2), debt-for-debt exchanges did not create OID for tax purposes. (See Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, § 101 , 92 Stat. 2549 (1978), “The Internal Revenue Code Tax Code”) was first amended in 1990 to provide that both distressed face value exchanges and distressed fair value exchanges create taxable OID. See Omnibus Budget Reconciliation Act of 1990, Pub.L. No. 101-508, § 11325 , 104 Stat. 1388 -466 (1990). Since that time, both the Second and Fifth Circuits have found that face value exchanges do not create disallowable unmatured interest, notwithstanding that they may create OID under the Tax Code. See Chateaugay, 961 F.2d at 383 (“The tax treatment of a transaction ... need not determine the bankruptcy treatment____ The tax treatment of debt-for-debt exchanges derives from the tax laws’ focus on realization events, and suggests that an exchange offer may represent a sensible time to tax the parties. The same reasoning simply does not apply in the bankruptcy context.”); Texas Commerce Bank, N.A. v. Licht (In re Pengo Indus., Inc.), 962 F.2d 543, 550 (5th Cir.1992) (“As bluntly stated by the Second Circuit, the reasoning underlying the tax treatment of debt-for-debt exchanges simply does not apply in the bankruptcy context.”) (internal quotation marks omitted).
The parties do not dispute that disallow-able OID is created for bankruptcy purposes when a company issues new debt in an original cash issuance for less than its face value. (Finnerty Direct ¶ 76; Oct. 21 Tr. 155:7-15.) Dr. Finnerty testified that “as an economic matter the bond exchange generated OID,” but Dr. Finnerty never defines “economic matter” beyond references to taxable OID. (Id. at ¶ 10.) Under Chateaugay, however, creation of OID for tax purposes is irrelevant in the context of face value exchanges. Because the Court finds no basis for distinguishing OID generated by fair value exchanges from OID generated by face value exchanges, Cha-teaugay controls. Even though the Exchange may have generated OID under the Tax Code, that does not dicatate that it created disallowable unmatured interest.
S. There is No Reason to Distinguish OID Generated by Fair Value Exchanges from OID Generated by Face Value Exchanges under the Second Circuit’s Reasoning in Chateaugay.
As the Second Circuit observed in Cha-teaugay, an exchange offer made by a *588 financially impaired company “can be either a ‘fair market value exchange’ or a ‘face value exchange.’ ” 961 F.2d at 381 (citations omitted). 28 Because the Second Circuit in Chateaugay was presented with a face value exchange, the court did not address whether its decision would extend to a fair value exchange. Instead, the Court explicitly limited its holding to face value exchanges, noting that it “might make sense” to disallow OID in a fair market value exchange. Id. The Court concludes, having the benefit of a full record and argument, that there is no meaningful basis upon which to distinguish between the two types of exchanges.
The Plaintiffs’ expert Dr. Finnerty admitted at trial that distinguishing between face value and fair value exchanges is “somewhat arbitrary.” (Oct. 21 Tr. 67:10-13.) In fact, Dr. Finnerty acknowledged that nearly all of the features that companies consider in connection with a debt-for-debt exchange can be used in both face value and fair value exchanges: (1) granting of security in the issuer’s collateral; (2) interest rate; (3) maturity date; (4) payment priorities; (5) affiliate guarantees; (6) other lending covenants; (7) redemption features; (8) adding or removing a sinking fund or conversion feature; and (9) offering stock with the new debt. (Id. at 67:17-69:9.) Other than changing the face value of the bond (which is not possible in face value exchanges), an issuer “could adjust every other factor” available to it. (Id. at 69:4-9.) For example, an issuer could provide the exchanging noteholders with security. Both experts testified that there would be no disallowable OID if the Junior Secured Notes were issued at $1,000 face value, even though the new notes were secured while the Old Notes were unsecured, because that exchange would be expressly governed by Chateau-gay. (Id. at 136:9-20; 214:2-4.) Thus, despite the Plaintiffs’ contention that the consideration involved in the Exchange— trading the unsecured notes for secured and structurally senior obligations — justifies breaking from the Second Circuit’s decision in Chateaugay, the evidence presented at trial indicated that the two types of exchanges are virtually identical, and it would be arbitrary for the Court to distinguish between them.
The Court thus concludes that there is no commercial or business reason, or valid theory of corporate finance, to justify treating claims generated by face value and fair value exchanges differently in bankruptcy. First, the market value of the old debt is likely depressed in both a fair value and face value exchange. Second, OID is created for tax purposes in both fair value and face value exchanges. Third, there are concessions and incentives in both fair value and face value exchanges. In addition, both fair and face value exchanges offer companies the opportunity to restructure out-of-court, avoiding the time and costs — both direct and indirect — of a bankruptcy proceeding.
The Plaintiffs argue that the “plain language” of the statute must be enforced unless it leads to an absurd result. They contend that applying the language of section 502(b) to disallow OID will not lead to absurd results because even if OID is disallowed, the JSNs’ recovery exceeds the recovery of the still-outstanding Original Noteholders. But the term “unmatured interest” in section 502(b)(2) is not defined, making application of the plain language rule debatable. And whatever rules are adopted by courts should provide prediet- *589 ability to parties in planning transactions. The outcome — whether a transaction results in disallowed OID for bankruptcy purposes — should not hinge on whether, with the benefit of hindsight, noteholders that exchanged their notes did better than those that did not exchange. Determining whether the transaction created disallowa-ble OID should not depend on if the note-holders or the debtors got a “good deal” in bankruptcy. That rule would create confusion in the market and would likely complicate a financially distressed company’s attempts to avoid, bankruptcy with the cooperation of its creditors. The reasoning of Chateaugay supports this conclusion. 961 F.2d at 383 .
For the foregoing reasons, the Court concludes that the JSNs’ claim should not be reduced by the amount of unamortized OID.
B. The JSNs Are Not Entitled to an Adequate Protection Claim.
1. Generally
The Bankruptcy Code requires a debtor to provide a secured lender with adequate protection against a diminution in value of the secured lender’s collateral resulting from: (1) the imposition of the automatic stay under section 362; (2) the use, sale, or lease of the property under section 363; and (3) the granting of a lien under section 364. 11 U.S.C. § 361 (1). The Bankruptcy Code does not articulate what constitutes “adequate protection” for purposes of the statute, but section 361 articulates three separate examples of what may constitute adequate protection: (1) periodic cash payments; (2) offering a replacement lien “to the extent that such stay, use, sale, lease, or grant results in a decrease in the value of such entity’s interest in such property”; and (3) other relief that will assure the creditor that its position will not be adversely affected by the stay. Id.; see also 3 Collier on Bankruptcy ¶¶ 3 62.07[3][b]-[d] (16th ed. 2011).
A secured creditor is entitled to adequate protection of its interest in the value of its collateral and can obtain adequate protection either after a contested cash collateral hearing, or, as is more often the case, by a consensual cash collateral order. At the commencement of this case, the parties negotiated, and the Court signed, a Cash Collateral Order that, among other things, established the JSNs’ right to adequate protection for the use of their collateral and the means by which such adequate protection would be provided. Pursuant to paragraph 16 of the Cash Collateral Order, the JSNs are entitled to
[AJdequate protection of their interests in Prepetition Collateral, including Cash Collateral, in an amount equal to the aggregate diminution in value of the Prepetition Collateral to the extent of their interests therein, including any such diminution resulting from the sale, lease or use by the Debtors (or other decline in value) of any Prepetition Collateral, including Cash Collateral, the priming of the AFI Lenders’ liens on the AFI LOC Collateral by the Carve Out and AFI DIP Loan, and the automatic stay pursuant to section 362 of the Bankruptcy Code[.]
(PX 76 at 24.) As adequate protection, the JSNs were granted adequate protection liens on all of the collateral securing the AFI Revolver, the AFI LOC, and all of the equity interests of the Barclays DIP Borrowers, and, to the extent that such liens were insufficient to provide adequate protection, the right to assert a claim under section 507(b) of the Bankruptcy Code. (Id. at 29.) The JSNs now contend they are entitled to recover an adequate protection claim of $515 million based on alleged diminution in value of their prepetition collat *590 eral used during the case under a series of consensual cash collateral orders. The Plaintiffs disagree, asserting that the JSN Collateral has not declined in value since the Petition Date and that the JSNs therefore cannot assert an adequate protection claim.
The parties agree that the amount of any adequate protection claim is to be measured by the difference in value of the collateral on the Petition Date and the Effective Date. 29 The parties also largely agree about the Effective Date value of the JSN Collateral, subject to adjustments discussed elsewhere in this Opinion. Thus, much of the testimony offered at trial was aimed at establishing the Petition Date value of the JSNs’ collateral.
2. The JSNs Bear the Burden of Showing Diminution in Value.
The burden of proving valuation falls on different parties at different times. In establishing its claim, a secured creditor generally bears the burden under section 506(a) of proving the amount and extent of its lien. In re Sneijder, 407 B.R. 46, 55 (Bankr.S.D.N.Y.2009); see also In re Heritage Highgate, Inc., 679 F.3d 132, 140 (3d Cir.2012) (holding that “the ultimate burden of persuasion is upon the creditor to demonstrate by a preponderance of the evidence both the extent of its hen and the value of the collateral securing its claim”) (quoting In re Robertson, 135 B.R. 350, 352 (Bankr.E.D.Ark.1992)). Once the amount and extent of the secured claim has been set, the burden shifts to a debtor seeking to use, sell, lease, or otherwise encumber the lender’s collateral under sections 363 or 364 of the Code to prove that the secured creditor’s interest will be adequately protected. See Wilmington Trust Co. v. AMR Corp. (In re AMR Corp.), 490 B.R. 470, 477-78 (S.D.N.Y.2013) (holding that the creditor seeking adequate protection “need only establish the validity, [priority, or extent] of its interest in the collateral, while the Debtor bears the initial burden of proof as to the issue of adequate protection”) (internal quotation marks and citation omitted); see also Resolution Trust Corp. v. Swedeland Dev. Grp., Inc. (In re Swedeland Dev. Grp., Inc.), 16 F.3d 552, 564 (3d Cir.1994) (holding, in the context of granting a priming lien under section 364(d)(1), that the “debtor has the burden to establish that the holder of the lien to be subordinated has adequate protection”) (citation omitted). In contrast, a secured creditor seeking to lift the automatic stay under section 362(d)(1) “for cause, including lack of adequate protection,” bears the burden of showing that the debtor lacks equity in the property. 11 U.S.C. §§ 362 (d)(1), 362(g)(1); see also In re Elmira Litho, Inc., 174 B.R. 892, 900-03 (Bankr.S.D.N.Y.1994). But in all cases, the creditor bears the burden in the first instance of establishing the amount and extent of its hen under section 506(a).
The JSNs recognize that they must establish their section 507(b) adequate protection claim within the rubric of section 506(a). Further, they concede that the burden of proving the extent of a claim is typically born by the creditor seeking to establish the claim. Nonetheless, the JSNs argue that because their claim seeks adequate protection, the Debtors should have the burden of proving that the JSNs’ *591 interests were adequately protected. The Court disagrees.
The parties established at the outset of this case that the JSNs’ interest in their collateral was adequately protected, when they negotiated, and the Court signed, the Cash Collateral Order. 30 As the Court explained in its ruling on the motions to dismiss:
If the value of the JSNs’ collateral actually diminishes, then the JSNs may assert an adequate protection claim.... The Defendants caution against establishing new rules on adequate protection and valuation, but the Court’s decision is premised on the terms of the Cash Collateral Order, which the JSNs helped negotiate. That Order provided the JSNs with bargained-for adequate protection.
Residential Capital, 497 B.R. at 420 . The bargained-for adequate protection included several liens and the right to assert a claim under section 507(b) for any diminution in value not otherwise protected. (PX 76 at 29.) That the JSNs now seek to assert this adequate protection claim based on diminution in value does not shift the initial burden of proving the extent and validity of the claim under section 506(a) to the Debtors. Rather, this burden remains squarely with the secured creditor — the JSNs. 31 See, e.g., Qmect, Inc. v. Burlingame Capital Partners II, L.P., 373 B.R. 682, 690 (N.D.Cal.2007) (affirming bankruptcy court’s requirement that secured lenders prove diminution in value of collateral prior to foreclosing on replacement liens, because “the purpose of adequate protection is to protect lenders from diminution in the value of their collateral”).
3. Fair Market Value in the Hands of the Debtors is the Proper Petition Date Valuation Methodology.
The Plaintiffs argue that for adequate protection purposes, the collateral should be valued at the Petition Date based on the foreclosure value of the collateral in the hands of the secured creditor. The Defendants argue that the collateral should be valued based on the fair market *592 value of the collateral in the hands of the Debtors. The Court agrees with the Defendants that fair market value rather than foreclosure value applies, but as explained below, this holding provides little benefit to the Defendants because the Defendants’ fair market valuation evidence introduced by their expert witnesses is unreliable, vastly overstates the value of the collateral on the Petition Date, and is rejected by the Court as a basis to establish an adequate protection claim.
To establish their entitlement to an adequate protection claim, the JSNs must show that the aggregate value of their collateral diminished from the Petition Date to the Effective Date. The JSNs will only be entitled to adequate protection, if at all, to the extent of the value of their interest in the collateral as of the Petition Date. 11 U.S.C. § 361 . The Supreme Court has explained that the phrase “value of such entity’s interest” in section 361 means the same as the phrase “value of such creditor’s interest” in section 506(a): the value of the collateral. United Sav. Ass’n of Texas v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 372 , 108 S.Ct. 626 , 98 L.Ed.2d 740 (1988). Thus, the question becomes how to value the JS

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/8496518. Public record. Not legal advice.