Credit Bid Requirement Affirmed

 Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

The US Supreme Court has ruled on an issue important to bankruptcy professionals and secured lenders.

This US Supreme Court ruling clears up a split among US circuit courts and clarifies the rights of secured lenders.  In my opinion, it gives them greater leverage in bankruptcy.

The ruling involves what is known in bankruptcy practice as a “credit bid” by a secured lender.   In a credit bid, a secured lender can bid to buy the asset securing the loan by using the amount of the lender’s bankruptcy claim as if it was cash.

The US Supreme Court ruled that, in most instances, in order for a debtor to sell an asset securing a loan free and clear without a lien, the debtor is required to permit a secured lender to credit bid to buy the asset if the secured lender wishes.

A buyer of assets from a bankrupt business typically wants to buy the assets free and clear of any liens from the bankrupt business.  Therefore, the debtor effectively has to permit the secured lender to “credit bid” if he wishes.

For more information on the topic and the ruling, please see the two articles linked below.

 As always, please contact me to help you raise equity or debt or complete M&A transactions. 

Sheppard Article: http://www.bankruptcylawblog.com/other-nationally-significant-cases-canonized-creditbidding-the-supreme-court-unanimously-affirms-secured-creditors-right-to-creditbid-at-free-and-clear-sale-in-plan.html?utm_source=twitterfeed&utm_medium=twitter

Fulbright Article: http://www.fulbright.com/index.cfm?fuseaction=publications.detail&pub_id=5540&site_id=494&detail=yes