One of the methods that bankruptcy courts use to set the cramdown interest rate that a plan must provide to an objecting secured creditor. Under the prime plus formula approach, the court starts with prime as a base rate and then adjusts that rate upward by assessing the risk associated with the facts of the case. The risk premium is determined by reference to such factors as the debtor’s credit history, the nature of the collateral, the length of repayment, and the viability of the reorganization plan.
See also Coerced Loan Approach, Cost of Funds Approach, Cramdown, Cramdown Interest Rate, Forced Loan Approach, Formula Approach, Market Rate Approach, Presumptive Contract Rate Approach, Treasury Plus Formula Approach.