A method rarely but occasionally employed by some bankruptcy courts to set the cramdown interest rate. This approach sets the cramdown interest rate at a rate that approximates the creditor’s cost to borrow funds in the marketplace. Some courts then add a risk premium to that rate to arrive at the cramdown interest rate. The United States Supreme Court’s decision in the Till case makes it unlikely that any bankruptcy court would continue to use the cost of funds approach.
See also Coerced Loan Approach, Cramdown Interest Rate, Forced Loan Approach, Formula Approach, Market Rate Approach, Presumptive Contract Rate Approach, Prime Plus Formula Approach, Treasury Plus Formula Approach.