NEW YORK -- The importance of creditors in shaping a Chapter 11 plan can be inversely proportional to their priority standing.

Creditors at the head of the payment line, who get paid in full, have little or nothing to say about the terms of the plan, while creditors taking big hits will have the chance to vote on whether they want to accept the plan.

In the R.H. Macy & Co. bankruptcy, Federated Department Stores, which has purchased half of The Prudential's mortgage claim, stands near the top of the priority scale for payment. If its claim is paid in full, including interest, it won't even have a vote in the acceptance of a plan. Only creditors whose claims are "impaired" will get to vote on the plan. In the Chapter 11 plan outlined by Macy's, general unsecured creditors (trade creditors) are offered roughly 30 to 37 cents on the dollar while bondholders are offered amounts ranging from $246 million for $380 million in face value of senior bonds to $49 million on $560 million in junior subordinated discount bonds. There is no question that those claims are being impaired.

The Prudential/Federated Department Stores claim is listed at $1.07 billion and value to be distributed is $1.07 billion. This looks like payment in full. But there is a big question. Is the value placed on the distribution by Macy's real value? If Macy were to pay Prudential/Federated 100 percent of their claim in full in cash, that would be the end of it. Prudential/Federated would have to take the money and walk. They would not be involved in the voting. But Macy's is not proposing to pay cash. Instead, the "value" Macy's is offering is a combination of Macy debt securities and Macy stock. That's not the same as 100 percent in cash so it leaves the door open for Prudential/Federated, along with other secured creditors, to claim that the value being distributed is not worth what Macy's says it is.

The issue of value will probably boil down to a battle between two camps of investment bankers. Macy's bankers would find plenty of evidence to support the valuation while investment bankers on the other side would find just as much evidence to show that the Macy's value is inflated. If the Macy valuation is found to be inflated, the claims of the secured creditors would be "impaired," giving them the right to accept or reject the plan.The ultimate decision will be up to Chief Judge Burton R. Lifland, who is presiding over the Macy's bankruptcy proceeding.

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