The Red Zone published several posts over the past few years on make-whole and solvent-debtor issues across a number of high-profile cases. See, e.g., HERTZ After Cert Denial: Make-Wholes, Solvent Debtors, and the Reach of § 502(b)(2) (April 10, 2026); Make-Whole Premiums in Bankruptcy: Clarity in Drafting, Certainty in Recovery (Apr. 10, 2025); Are Unsecured Creditors of a Solvent Debtor Entitled to Post-Petition Interest at the Contract Rate? Recent Circuit Court of Appeals Decisions Say “Yes” (Jan. 4, 2023); Good Problems to Have: Recovery of Interest by Unsecured Creditors of a Solvent Chapter 11 Debtor (Apr. 18, 2022). This post serves as a companion piece – cataloging the circuit court decisions on the issue – to provide further guidance to clients and practitioners.

A make-whole dispute in bankruptcy almost always collapses into two separate questions, and courts can answer them in opposite directions. The first is a contract question: is the premium even owed once a bankruptcy filing accelerates the debt? The second is a Bankruptcy Code question: even if the premium is owed, is it disallowed as unmatured interest under § 502(b)(2), and does the solvent-debtor exception nonetheless require the debtor to pay it (and at what rate)? Keeping the two prongs distinct is the key to reading the split correctly; a creditor can win one and lose the other.

I. Question 1: Is the Make-Whole Contractually Owed When Bankruptcy Accelerates the Debt?

This is pure contract interpretation, and it produced the original circuit split. The Third Circuit enforces a redemption-premium provision against a post-acceleration repayment; the Second Circuit will not, absent language expressly requiring the premium on acceleration. The lesson is in the drafting.
 

II. Question 2: Is the Make-Whole “Unmatured Interest,” and Does the Solvent-Debtor Exception Apply?

Two distinct holdings travel together here, and it is worth keeping them apart. On characterization, only two circuits, the Fifth (Ultra Petroleum) and the Third (Hertz), have squarely held that a conventional make-whole is the economic equivalent of unmatured interest disallowed under § 502(b)(2) (Ultra, 51 F.4th at 146–60; Hertz, 120 F.4th at 1197–1200). On the solvent-debtor principle, six circuits, the First (Gencarelli), Second (LATAM), Third (Hertz), Fifth (Ultra), Sixth (Dow Corning), and Ninth (PG&E), have ruled or suggested that the solvent-debtor exception survived the Code, so a solvent debtor cannot shortchange senior creditors while equity takes value: the premium (where owed) and post-petition interest must be paid before equity recovers. But only two of those six (the Fifth and Third) reached a make-whole; the rest addressed the exception or pendency interest generally, PG&E and LATAM turned on impairment and pendency interest under §§ 502(b)(2) and 1124(1), and Gencarelli and Dow Corning predate the recent § 502(b)(2) wave. That is why the two prongs must be counted separately.

Two cautions temper the “consensus” label. First, the rate is equitable, not automatic: Hertz awarded the contract rate because equity had already taken roughly $1.1 billion (about four times the disputed make-whole and interest) before the noteholders were made whole, and a marginally-solvent debtor or a pre-effective-date posture could draw the lower federal judgment rate. Second, the solvent-debtor exception is an unwritten, pre-Code equitable doctrine with no textual home in the 1978 Code; Judge Porter’s Hertz dissent, echoing the Ultra and PG&E dissents, argues that § 502(b)(2) forecloses it. No circuit has held the exception did not survive, and six now recognize it, so the survival question is well-supported; the genuinely thin spots are the make-whole characterization (only two circuits) and the rate. The textualist position has not prevailed, but it is coherent and live — Justice Kavanaugh voted to grant cert, and the Hertz majority itself declined to follow LATAM (120 F.4th at 1200–04), treating its solvent-debtor discussion as dicta. Read the alignment as current, not settled.
 

III. What Has Changed Since the Prior Red Zone Posts

• Cert. denied; the split is now frozen. As covered in the last Hertz post, the Supreme Court denied review on Jan. 12, 2026 (Kavanaugh, J., would have granted) despite the petition’s argued conflict with LATAM; the United States, on the CVSG, had recommended denial, seeing no conflict on the question presented. Hertz is settled law in the Third Circuit, and national resolution is off the table for now.

• Section 502(b)(2) economic-substance reasoning is spreading beyond make-wholes. In In re Yellow Corp., 672 B.R. 219 (Bankr. D. Del. 2025) (Goldblatt, J.), the court applied the same present-value logic to ERISA multiemployer withdrawal-liability claims, discounting the accelerated payment stream because § 502(b)(2) disallows the unmatured-interest component. Not a make-whole case, but the same characterization engine.

IV. Practice Takeaways

• Two independent prongs. Enforceability (Question 1) and allowability (Question 2) are separate inquiries that can cut opposite ways for the same creditor: a premium can be contractually owed (EFIH) yet still be disallowed as unmatured interest unless the debtor is solvent. Winning one does not win the other. 
• Drafting (Question 1). In any circuit, tie the premium to redemption and expressly require it upon acceleration, including acceleration triggered by a bankruptcy filing. The 2d/3d Cir. split turns almost entirely on that language. 
• Insolvent cases (Question 2). Conventional make-wholes are now vulnerable to disallowance as unmatured interest in both circuits to have reached the § 502(b)(2) characterization question (5th, 3d). Lenders should weigh fee structures not keyed to forgone future interest, recognizing that a functional-substance analysis may still recharacterize them.
• Solvent cases (Question 2). Budget for full contractual economics. A plan that pays equity while capping noteholders at the federal judgment rate invites a serious objection in any of the six circuits that recognize the solvent-debtor exception (1st, 2d, 3d, 5th, 6th, 9th).
• Venue. Because seven circuits remain unspoken, the state of the law on the solvent-debtor exception is itself a venue-selection variable in solvent-debtor cases. The Eleventh Circuit has not addressed it; litigants there should expect textualist arguments tracking the Ultra, PG&E, and Hertz dissents. On the narrower § 502(b)(2) make-whole characterization question, only the Fifth and Third Circuits have ruled – eleven circuits remain open there as well.

V.  Key Authorities

In re Energy Future Holdings Corp. (EFIH), 842 F.3d 247 (3d Cir. 2016).

In re MPM Silicones, LLC (Momentive), 874 F.3d 787 (2d Cir. 2017), cert. denied sub nom. BOKF, N.A. v. Momentive Performance Materials Inc., 138 S. Ct. 2653 (2018).

In re AMR Corp., 730 F.3d 88 (2d Cir. 2013).

In re Gencarelli, 501 F.3d 1 (1st Cir. 2007).

In re LATAM Airlines Grp. S.A., 55 F.4th 377 (2d Cir. 2022), cert. denied, 143 S. Ct. 2609 (2023).

In re Dow Corning Corp., 456 F.3d 668 (6th Cir. 2006).

In re PG&E Corp., 46 F.4th 1047 (9th Cir. 2022).

Ultra Petroleum Corp. v. Ad Hoc Comm. of OpCo Unsecured Creditors (In re Ultra Petroleum Corp.), 51 F.4th 138 (5th Cir. 2022), reh’g denied, No. 21-20008 (5th Cir. Nov. 15, 2022), cert. denied, 143 S. Ct. 2495 (2023).

In re Hertz Corp., 120 F.4th 1181 (3d Cir. 2024) (superseding 117 F.4th 109), cert. denied sub nom. Hertz Corp. v. Wells Fargo Bank, N.A., No. 24-1062, 2026 WL 79954 (U.S. Jan. 12, 2026).

In re Yellow Corp., 672 B.R. 219 (Bankr. D. Del. 2025).

11 U.S.C. § 502(b)(2).

Nelson Mullins attorneys are experienced in handling bankruptcy matters of all sizes and are well equipped to advise debtors, trustees, and creditors on the issue of make-whole premiums, post-petition interest, and other related issues in bankruptcy cases of all sizes. For tailored guidance, reach out to our Bankruptcy and Financial Restructuring team at nelsonmullins.com.