PATRICK E. HIGGINBOTHAM, Circuit Judge:
Wells Fargo Bank National Association (‘Wells Fargo”) appeals from a district court decision affirming confirmation of a Chapter 11 cramdown plan. Finding no error in the bankruptcy court’s judgment,
we affirm.
I.
In 2007, Texas Grand Prairie Hotel Realty, LLC, Texas Austin Hotel Realty, LLC, Texas Houston Hotel Realty, LLC, and Texas San Antonio Hotel Realty, LLC (collectively, “Debtors”) obtained a $49,000,000 loan from Morgan Stanley Mortgage Capital, Inc., applying the proceeds to acquire and renovate four hotel properties in Texas. Morgan Stanley— not a party to this case — took a security interest in the hotel properties and in substantially all of the Debtors’ other assets. Wells Fargo eventually acquired the loan from Morgan Stanley.
In 2009, the Debtors’ hotel business soured. Unable to pay Wells Fargo’s loan as payment came due, the Debtors filed for Chapter 11 protection and proposed a plan of reorganization. When Wells Fargo rejected the proposed reorganization, the Debtors sought to cram down their plan under 11 U.S.C. § 1129(b). The plan valued Wells Fargo’s secured claim at roughly $39,080,000, in accordance with Wells Fargo’s own appraisal. Under the plan, the Debtors proposed to pay off Wells Fargo’s secured claim over a term of ten years, with interest accruing at 5% — 1.75% above the prime rate on the date of the confirmation hearing.
The bankruptcy court held a two-day evidentiary hearing to assess whether it could confirm the Debtors’ plan under § 1129(b) over Wells Fargo’s objection. Among other things, Wells Fargo challenged the Debtors’ proposed 5% interest rate on its secured claim. Both parties stipulated that the applicable rate should be determined by applying the “prime-plus” formula endorsed by a plurality of the Supreme Court in
Till v. SCS Credit Corp.
However, the parties’ experts disagreed on the application of that formula: whereas the Debtors’ expert — Mr. Louis Robichaux — testified that it supported a 5% rate, Wells Fargo’s expert insisted that it mandated a rate of at least
8.8%.
Wells Fargo filed a
Daubert
motion seeking to strike Robichaux’s testimony under Rule 702, insisting that “Robichaux’s ... failure to correctly apply
Till
and its progeny show[s] that his methodology is flawed, does not comport with applicable law, and is unreliable.” The bankruptcy court denied Wells Fargo’s motion to strike, adopted Robichaux’s analysis as correct, and confirmed the Debtors’ cram-down plan.
Wells Fargo appealed to the district court, challenging the bankruptcy court’s decision to admit Robichaux’s testimony as well as the court’s adoption of Robichaux’s § 1129(b) interest-rate analysis. The district court affirmed and this appeal followed. The Debtors have moved to dismiss the appeal as equitably moot.
II.
We begin by reviewing
de novo
the Debtors’ equitable mootness defense.
The doctrine of equitable mootness is unique to bankruptcy proceedings, responsive to the reality that “there is a point beyond which a court cannot order fundamental changes in reorganization actions.”
To establish equitable mootness, a debtor must show that (i) the plan of reorganization has not been stayed, (ii) the plan has been “substantially consummated,” and (iii) the relief requested by the
appellant would “affect either the rights of parties not before the court or the success of the plan.”
Wells Fargo here stipulates that the first two elements are satisfied.
This Circuit has taken a narrow view of equitable mootness, particularly where pleaded against a secured creditor.
Reasoning that “the possibility of partial recovery obviates the need for equitable mootness,”
we have permitted appeals to go forward even where granting full relief “could have imposed a very significant liability on the estate, to the great detriment of both the success of the reorganization and third parties.”
For example, in
Matter of Scopac,
we permitted secured creditors to appeal a bankruptcy court valuation order whose reversal had the potential to — and ultimately
did
— impose millions of dollars in liability on a cash-starved entity just emerging from bankruptcy.
In
Matter of Pacific Lumber Co.,
we allowed a secured creditor to appeal under similar circumstances.
The Debtors insist that granting relief to Wells Fargo could result in a cataclysmic unwinding of the reorganization plan. According to the Debtors, “all of the nearly $8 million in distributions made under the Plan, and all of the other actions taken in furtherance and implementation of the Plan — including transactions -with third parties — will be in jeopardy of needing to be undone, clawed back, or otherwise abrogated.” Moreover, the Debtors contend, any money judgment against them would come out of the pockets of unsecured creditors, as “[tjhere is just one ‘pot’ of funds to distribute.” Finally, the Debtors aver, a judgment in favor of Wells Fargo would affect the rights and expectations of the “Equity Purchaser” — that is, the Debtors themselves — who paid a substantial sum to acquire equity in the bankrupt entities pursuant to the reorganization plan.
While the Debtors’ concerns might be realized, they need not be. This Court could grant partial relief to Wells Fargo without disturbing the reorganization, by, for example, awarding a slightly higher § 1129(b) cramdown interest rate or granting a small money judgment. The Debtors present no credible evidence that granting such fractional relief would require unwinding any of the transactions undertaken pursuant to the reorganization plan; indeed, by the Debtors’ own account, they are
not
cash starved like the debtors in
Pacific Lumber
or
Scopac,
having enjoyed a substantial improvement in their revenues and cash position after filing for bankruptcy.
Nor do the Debtors present compelling evidence that granting fractional relief
would unduly burden the rights of third parties not before the court. Though the reorganization plan ties the unsecured creditors’ recovery to the Debtors’ projected net operating income through 2015, the Debtors’
actual
net operating income may be higher. Moreover, in fiscal years 2016 and 2017 — after the Debtors’ payment obligations to unsecured creditors have ended — the Debtors’ own projections show a net operating income of approximately $3,200,000. In other words, the possibility exists that the Debtors could afford a fractional payout without reducing distributions to third-party claimants.
As for the Debtors’ assertion that a fractional award to Wells Fargo would affect their interest as equity holders in the reorganized bankrupt, perhaps they are correct. But equitable mootness protects only “the rights of
parties not before the
court.”
The fact “that a judgment might have adverse consequences [to the equity holders of the reorganized bankrupt] is not only a natural result of any appeal ... but [should have been] foreseeable to them as sophisticated investors.”
Unpersuaded by the Debtors’ motion to dismiss this appeal as equitably moot, we proceed to the merits, turning first to Wells Fargo’s claim that the bankruptcy court erred in admitting the testimony of the Debtors’ restructuring expert — Mr. Louis Robichaux — regarding the appropriate § 1129(b) cramdown rate of interest.
III.
According to Wells Fargo, Robichaux’s testimony is inadmissible under Rule 702 because his “purely subjective approach to interest-rate setting” violates the Supreme Court’s decision in
Till,
which “call[s] for an objective inquiry.”
We review a trial court’s decision to admit expert testimony for abuse of discretion.
As read by
Daubert,
Rule 702 requires trial courts to ensure that proffered expert testimony is “not only relevant, but reliable.”
To determine reliability, the trial court must make a “preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology can properly be applied to the facts in issue.”
Two cautions signify: the trial court ought not “transform a
Daubert
hearing into a trial on the merits,”
and “most of the safeguards provided for in
Daubert
are not as essential in a case ... where a district judge sits as the trier of fact in place of a jury.”
Here, Wells Fargo does not challenge Robichaux’s factual findings, calculations, or financial projections, but rather argues that Robichaux’s analysis as a whole rested on a flawed understanding of
Till.
As we read it, Wells Fargo’s
Daubert
motion is indistinguishable from its argument on the merits. It follows that the bankruptcy judge reasonably deferred Wells Fargo’s
Daubert
argument to the
confirmation hearing instead of deciding it before the hearing.
We pursue the same path and proceed to the merits.
IV.
Wells Fargo claims that the bankruptcy court erred in setting a 5% cramdown rate. We turn first to the standard under which this Court reviews a Chapter 11 cramdown rate determination, then to its application.
A.
Under 11 U.S.C. § 1129(b), a debtor can “cram down” a reorganization plan over the dissent of a secured creditor only if the plan provides the creditor — in this case Wells Fargo — with deferred payments of a “value” at least equal to the “allowed amount” of the secured claim as of the effective date of the plan.
In other words, the deferred payments, discounted to present value by applying an appropriate interest rate (the “cramdown rate”), must equal the allowed amount of the secured creditor’s claim.
Wells Fargo contends that though a bankruptcy court’s factual findings under § 1129(b) are reviewed only for clear error, a bankruptcy court’s choice of
methodology
for calculating the § 1129(b) cram-down rate is a question of law subject to
de novo
review. Wells Fargo suggests that the Supreme Court’s decision in
Till
supports its position, reasoning that
Till
is “controlling authority” that requires bankruptcy courts to apply the prime-plus formula to calculate the Chapter 11 cram-down rate.
We disagree. In
T-H New Orleans,
we “[declined] to establish a particular formula for determining an appropriate cram-down interest rate” under Chapter 11, reviewing the bankruptcy court’s entire § 1129(b) analysis for clear error.
We reasoned that it would be imprudent to “tie the hands of the lower courts as they make the factual determination involved in establishing an appropriate interest rate.”
Though Wells Fargo contends that we overruled
T-H New Orleans
in our subsequent decision in
Matter of Smithwick,
this reading of
Smithwick
is untenable. In
Smithwick,
we held that bankruptcy courts must calculate the Chapter 13 cramdown rate using the “presumptive contract rate” approach
However, we reaffirmed that “[t]his court has declined to establish a particular formula
for the cramdown interest rate in Chapter 11 cases.”
We justified our departure from
T-H New Orleans
in the Chapter 13 context on the ground that the need for judicial guidance is more acute in the case of individual bankruptcies, given the “greater need to reduce litigation expenses associated with an individualized discount rate determination.”
Smithwick
is not in tension with
T-H New
Orleans’s application in Chapter 11 proceedings.
Nor is
Till.
In
Till,
a plurality of the Supreme Court ruled that bankruptcy courts must calculate the Chapter 13 cramdown rate by applying the prime-plus formula.
While the plurality suggested that this approach should also govern under Chapter 11,
we have held that “[a] Supreme Court decision must be more than merely illuminating with respect to the case before us, because a panel of this court can only overrule a prior panel decision if such overruling is unequivocally directed by controlling Supreme Court precedent.”
As we recognized in
Drive Financial Services, L.P. v. Jordan,
Till
was a splintered decision whose precedential value is limited even in the Chapter 13 context.
While many courts have chosen to apply the
Till
plurality’s formula method under Chapter 11, they have done so because they were
persuaded
by the plurality’s reasoning, not because they considered
Till
binding.
Ultimately, the plurality’s suggestion that its analysis also governs in the Chapter 11 context — which would be dictum even in a majority opinion — is not “controlling ... precedent.”
Today, we reaffirm our decision in
T-H New Orleans.
We will not tie bankruptcy courts to a specific methodology as they assess the appropriate Chapter 11 cram-down rate of interest; rather, we continue to review a bankruptcy court’s entire cramdown-rate analysis only for clear error.
B.
At length, we turn to address whether the bankruptcy court clearly erred in assessing a 5% cramdown rate under § 1129(b). While both parties stipulate that the
Till
plurality’s formula approach governs the applicable cramdown rate, they disagree on what that approach requires.
1.
Under the
Till
plurality’s formula method, a bankruptcy court should begin its cramdown rate analysis with the national prime rate — the rate charged by banks to creditworthy commercial borrowers— and then add a supplemental “risk adjustment” to account for “such factors as the circumstances of the estate, the nature of the security, and the duration and feasibility of the reorganization plan.”
Though the plurality “d[id] not decide the proper scale for the risk adjustment,” it observed that “other courts have generally approved adjustments of 1% to 3%.”
In ruling that the formula method governs under Chapter 13, the
Till
plurality was motivated primarily by what it viewed as the method’s simplicity and objectivity.
First, the plurality reasoned, the method minimizes the need for costly evi-dentiary hearings, as the prime rate is reported daily, and as “many of the factors relevant to the [risk] adjustment fall squarely within the bankruptcy court’s area of expertise.”
Second, the plurality observed, the approach varies only in “the state of financial markets, the circumstances of the bankruptcy estate, and the characteristics of the loan” instead of inquiring into a particular creditor’s cost of funds or prior contractual relations with the debtor.
For these same reasons, the plurality “rejected] the coerced loan, presumptive contract rate, and cost of funds approaches,” as “[e]ach of these approaches is complicated, imposes significant eviden-tiary costs, and aims to make each individual creditor whole rather than to ensure the debtor’s payments have the required present value.”
The plurality was particularly critical of the coerced loan approach applied by the Seventh Circuit below, noting that it “requires bankruptcy courts to consider evidence about the market for comparable loans to similar (though nonbankrupt) debtors — an inquiry far removed from such courts’ usual task of evaluating debtors’ financial circumstances and the feasibility of their debt adjustment plans.”
Having explained its prime-plus formula, the plurality applied it to the case before the Court, in which the secured creditor— an auto-financing company — objected to the bankruptcy court’s assessment of a cramdown rate at 1.5% over prime.
The creditor claimed that this cramdown rate was woefully inadequate to compensate it for the risk that the debtor would default on its restructured obligations, presenting evidence that the subprime financing market would demand a rate of at least prime plus 13% for a comparable loan.
The plurality rejected the creditor’s arguments and affirmed the bankruptcy court’s 1.5% risk adjustment, observing that the debt- or’s expert had testified that the rate was “very reasonable given that Chapter 13 plans are supposed to be feasible.”
In a spirited dissent, Justice Scalia warned that the plurality’s approach would “systematically undereompensate” credi
tors.
Justice Scalia observed that “based on even a rudimentary financial analysis of the facts of this case, the 1.5% [risk adjustment assessed by the plurality] is obviously wrong — not just off by a couple percent, but probably by roughly an order of magnitude.”
As for the plurality’s reference to the testimony of the debtors’ economics expert, Justice Scalia noted that “[n]othing in the record shows how [the expert’s] platitudes were somehow manipulated to arrive at a figure of 1.5 percent.”
Justice Scalia concluded that it was “impossible to view the 1.5% figure as anything other than a smallish number picked out of a hat.”
While
Till
was an appeal from a Chapter 13 proceeding, the plurality observed that “Congress [likely] intended bankruptcy judges and trustees to follow essentially the same [formula] approach when choosing an appropriate interest rate under [Chapters 11],” reasoning that the applicable statutory language was functionally identical in both contexts.
However, in Footnote 14, the plurality appeared to qualify its extension of the prime-plus formula to Chapter 11, observing that as “efficient markets” for exit financing often exist in business bankruptcies, a “market rate” approach might be more suitable for making the cramdown rate determination under § 1129(b).
In spite of Justice Scalia’s warning, the vast majority of bankruptcy courts have taken the
Till
plurality’s invitation to apply the prime-plus formula under Chapter 11.
While courts often acknowledge that Till’s Footnote 14 appears to endorse a “market rate” approach under Chapter 11
if
an “efficient market” for a loan substantially identical to the cramdown loan exists, courts almost invariably conclude that such markets are absent.
Among the courts that follow Till’s formula method in the Chapter 11 context, “risk adjustment” calculations have generally hewed to the plurality’s suggested range of 1% to 3%.
Within that range, courts typically select a rate on the basis of a holistic assessment of the risk of the debtor’s default on its restructured obligations,
evaluating factors including the quality of the debtor’s management, the commitment of the debt- or’s owners, the health and future prospects of the debtor’s business, the quality of the lender’s collateral, and the feasibility and duration of the plan.
2.
Returning to the proceedings in this case, both Wells Fargo and the Debtors presented the bankruptcy court with expert testimony on the appropriate prime-plus cramdown rate. Mr. Louis Robi-chaux, the Debtors’ expert, began his analysis by quoting the prime rate at 3.25%. He then proceeded to assess a risk adjustment by evaluating the factors enumerated by the
Till
plurality, looking to “the circumstances of the [Debtors’ estate, the nature of the security, and the duration and feasibility of the plan.” Robichaux concluded that the Debtors’ hotel properties were well maintained and excellently managed, that the Debtors’ owners were committed to the business, that the Debtors’ revenues exceeded their projections in the months prior to the hearing, that Wells Fargo’s collateral was stable or appreciating, and that the Debtors’ proposed cram-down plan would be tight but feasible. On the basis of these findings, Robichaux assessed the risk of default “just to the left of the middle of the risk scale.” As
Till
had suggested that risk adjustments generally fall between 1% and 3%, Robichaux reasoned that a 1.75% risk adjustment would be appropriate.
Wells Fargo’s expert, Mr. Richard Ferrell, corroborated virtually all of Robi-ehaux’s findings with respect to Debtors’ properties, management, ownership, and projected earnings. Ferrell also agreed that the applicable prime rate was 3.25%. However, Ferrell devoted the vast majority of his cramdown rate analysis to determining the rate of interest that the market would charge to finance an amount of principal equal to the cramdown loan. Because Ferrell concluded that there was no market for single, secured loans comparable to the forced loan contemplated under the cramdown plan, he calculated the market rate by taking the weighted average of the interest rates the market would charge for a multi-tiered exit financing package comprised of senior debt, mezzanine debt, and equity. Ferrell’s calculations yielded a “blended” market rate of 9.3%.
To bring his “market influenced” analysis within the form of Till’s prime-plus method, Ferrell purported to “utilize the [3.25%] Prime Rate as the Base Rate,” making an upward “adjustment” of 6.05% to account for “the nature of the security interest.” This calculation yielded Ferrell’s 9.3% blended market rate.
Mr. Ferrell then adjusted the blended rate in accordance with the remaining
Till
factors, making a downward adjustment of 1.5% to account for the sterling “circumstances of the bankruptcy estate” and an upward adjustment of 1% to account for the plan’s tight feasibility. Ultimately, Mr. Ferrell concluded that Wells Fargo was entitled to a cramdown rate of 8.8%.
The bankruptcy court agreed with the parties that
Till
was “instructive, if not controlling” under Chapter 11. Turning to Mr. Robichaux’s analysis, the court concluded that “Mr. Robichaux properly interpreted
Till
and properly applied it,” and that his “assessment of the circumstances of the estate, the nature of the security, and the feasibility of the plan ... [were] credible and persuasive.” As for Mr. Ferrell’s analysis, the court rejected it as inconsistent with Till’s prime-plus method:
I disagree with [Mr. Ferrell’s] approach because it establishes a benchmark before adjustment that I just view to be completely inconsistent with
Till. Till
set that benchmark at national prime, but according to Mr. Ferrell, you first determine what level any portion of a loan would be financeable, and then you begin to work from there.... The Court finds no support for that type of analysis in
Till.
If anything this strikes the Court as more in the nature of a forced loan approach that the majority in
Till
expressly rejected.
Ultimately, the court determined, “[Robi-chaux’s] risk adjustment rate of 1.75% is defensible, ... especially ... in light of the modifications to the plan which render, in the Court’s opinion, the plan feasible.” Consequently, the court concluded that Wells Fargo was entitled to a 5% cram-down rate.
3.
We agree with the bankruptcy court that Robichaux’s § 1129(b) cram-down rate determination rests on an uncontroversial application of the
Till
plurality’s formula method. As the plurality instructed, Robichaux engaged in a holistic evaluation of the Debtors, concluding that the quality of the bankruptcy estate was sterling, that the Debtors’ revenues were exceeding projections, that Wells Fargo’s collateral — -primarily real estate— was liquid and stable or appreciating in value, and that the reorganization plan would be tight but feasible. On the basis of these findings — which were all independently verified by Ferrell — Robichaux assessed a risk adjustment of 1.75% over prime. This risk adjustment falls squarely within the range of adjustments other bankruptcy courts have assessed in simi
lar circumstances.
We also agree that Ferrell predicated his 8.8% cramdown rate on the sort of comparable loans analysis rejected by the
Till
plurality. Wells Fargo’s briefs repeatedly aver that the plurality characterized “the market for comparable loans” as “relevant,” complaining that Ferrell’s analysis can “hardly be consigned to the dustbin for considering relevant information.” However, aside from the fact that Wells Fargo takes the quoted language out of context, the plurality expressly rejected methodologies that “require[] the bankruptcy courts to consider evidence about the market for comparable loans,” noting that such approaches “require an inquiry far removed from such courts’ usual task of evaluating debtors’ financial circumstances and the feasibility of their debt-adjustment plans.”
Wells Fargo complains that Robichaux’s analysis produces “absurd results,” pointing to the undisputed fact that on the date of plan confirmation, the market was charging rates in excess of 5% on smaller, over-collateralized loans to comparable hotel owners. While Wells Fargo is undoubtedly correct that no willing lender would have extended credit on the terms it was forced to accept under the § 1129(b) cramdown plan, this “absurd result” is the natural consequence of the prime-plus method, which sacrifices market realities in favor of simple and feasible bankruptcy reorganizations.
Stated differently, while it may be “impossible to view” Robi-chaux’s 1.75% risk adjustment as “anything other than a smallish number picked out of a hat,”
the
Till
plurality’s formula approach — not Justice Scalia’s dissent— has become the default rule in Chapter 11 bankruptcies.
Notably, Wells Fargo makes no attempt to predicate Ferrell’s “market-influenced” blended rate calculation on the
Till
plurality’s Footnote 14, which suggests that a “market rate” approach should apply in Chapter 11 cases where “efficient markets” for exit financing exist.
Footnote
14 has been criticized by commentators, who observe that it rests on the untenable assumption that the voluntary market for forced cramdown loans is somehow less illusory in the Chapter 11 context than it is in the Chapter 13 context.
Nevertheless, many courts — including the Sixth Circuit — have found Footnote 14 persuasive, concluding that a “market rate” approach should be used to calculate the Chapter 11 cramdown rate in circumstances where “efficient markets” for exit financing exist.
Even assuming, however, that Footnote 14 has some persuasive value, it does not suggest that the bankruptcy court here committed any error. Among the courts that adhere to Footnote 14, most have held that markets for exit financing are “efficient” only if they offer a loan with a term, size, and collateral comparable to the forced loan contemplated under the cram-down plan.
In the present case, Ferrell himself acknowledged that “there’s no one in this market today that would loan this loan to the debtors — one to one loan-to-value ratio, 39 million dollars, secured by these properties.” While Ferrell concluded that exit financing could be cobbled together through a combination of senior debt, mezzanine debt, and equity financing, courts including the Sixth Circuit have rejected the argument that the existence of such tiered financing establishes “efficient markets,” observing that it bears no resemblance to the single, secured loan contemplated under a cramdown plan.
The bankruptcy court in this case calculated the disputed 5% cramdown rate on the basis of a straightforward application of the prime-plus approach — an approach that has been endorsed by a plurality of the Supreme Court, adopted by the vast majority of bankruptcy courts, and, perhaps most importantly, accepted as governing by both parties to this appeal. On this record, we cannot conclude that the bankruptcy court’s cramdown rate calculation is clearly erroneous. However, we do not suggest that the prime-plus formula is the only — or even the optimal — method for calculating the Chapter 11 cramdown rate.
y.
The judgment of the district court is AFFIRMED.