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

Program Materials

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.

Description

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.

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Outline

  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

Benefits

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?

Faculty

Thomas M. Horan
Thomas M. Horan
Member
Womble Carlyle

He focuses his practice on bankruptcy and creditors rights matters and is experienced in representing a broad range of...  |  Read More

Derek M. Stoldt
Derek M. Stoldt
Partner
Kaye Scholer

He focuses his practice on mergers and acquisitions, public and private securities offerings, joint ventures and...  |  Read More

Michael B. Solow
Michael B. Solow
Partner
Kaye Scholer

He has over 20 years experience representing creditors, trustees and governmental agencies and other parties nationwide...  |  Read More

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