Section 363 Bankruptcy Sales: Credit Bids and Distressed Asset Transactions

Legal Strategies for Buyers and Lenders

Recording of a 90-minute CLE webinar with Q&A

Conducted on Tuesday, May 12, 2009
Recorded event now available

This seminar will review the Section 363 bankruptcy sale process, the expanding use of credit bids by investors in distressed debt, the implications of the Clear Channel case on credit bids, and offer best practices for buyers and secured creditors involved in Section 363 sales.


Increasingly, bankruptcy has become a vehicle for sale rather than reorganization. Large shortfalls between secured debt and market value of collateral, and a dearth of buyers with cash or financing to bid, make it more common for secured creditors to successfully credit bid on their collateral.

An emerging strategy of investors is “loan to own” whereby an investor buys the debt of a distressed business at a steep discount, and once the company is in bankruptcy, makes a credit bid at auction for the face amount of the debt, and converts it to a controlling equity position.

The bankruptcy code generally favors secured creditors, but there are viable means for other creditors to challenge credit bids. Moreover, Clear Channel calls into question the prevailing assumption that a secured creditor's successful credit bid qualifies as a "free and clear" sale.

Listen as our panel of bankruptcy attorneys discusses the bankruptcy sales process, the varying strategies for secured creditors in submitting credit bids, and best practices for making and overcoming challenges to credit bids.


  1. Asset sales generally
    1. Standards for approval under Section 363
    2. Sale procedures
      1. Use of professionals
      2. Due diligence
      3. Stalking horse bidders
      4. Auction process
      5. Sale order
  2. Credit bids generally
    1. Secured status
    2. Claim amount
    3. Bid amount
    4. Consent requirements in multi-lender financings
    5. Ownership structure and governance
    6. Additional financing
  3. Challenges to credit bidder’s standing
    1. Recharacterization of debt
    2. Good faith
    3. Equitable subordination
  4. Secured creditor issues
    1. Defending a loan to own strategy
    2. Credit bids after Clear Channel
    3. Asset sales as part of a plan of reorganization


The panel will review these and other key questions:

  • How can unsecured creditors mount an effective challenge to a secured lender's credit bid?
  • How can a secured creditor defend its loan-to-own strategy against credit bid challenges?
  • What is the impact of the Clear Channel Outdoor Inc. v. Knupfer decision on credit bids and buyers in bankruptcy sales?


Thomas M. Horan, Member
Womble Carlyle, Wilmington, Del.

He focuses his practice on bankruptcy and creditors rights matters and is experienced in representing a broad range of entities in complex commercial bankruptcy cases including debtors, committees, debtor-in-possession lenders, secured and unsecured creditors, trustees, landlords, lessors, insurers and parties purchasing assets. He regularly defends preference and fraudulent transfer actions.

Derek M. Stoldt, Partner
Kaye Scholer, New York

He focuses his practice on mergers and acquisitions, public and private securities offerings, joint ventures and licensing arrangements. His clients include financial sponsors, such as private equity, hedge and venture capital funds, as well as public and private companies in a range of industries.

Michael B. Solow, Partner
Kaye Scholer, Chicago

He has over 20 years experience representing creditors, trustees and governmental agencies and other parties nationwide in the bankruptcy and insolvency area. He is Co-Chair of the firm's Business Reorganization and Creditors' Rights Department and is a frequent lecturer on various topics relating to dealing with insolvent entities.


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Bankruptcy Law Advisory Board

Mark N. Berman

Adjunct Professor

Northeastern University

Michael E. Foreman



Matthew Gensburg


Greenberg Traurig

Brian E. Greer



Douglas Lipke


Vedder Price

Victor Milione


Nixon Peabody

Steven B. Smith

Senior Consultant

JND Corporate Restructuring

Michael Solow


Kaye Scholer

Robert A. Weber


Skadden Arps Slate Meagher & Flom

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