Asset Sales Committee

ABI Committee News

Credit Bidding as Agent for the Bank Group: Dealing with the Issue of Unanimity

With a substantially increasing number of chapter 11 cases filed ending up in a sale pursuant to Bankruptcy Code §363, bankruptcy practitioners are now essentially required to develop an understanding of the parameters of credit bidding under §363. One specific situation arising in many §363 sales involves a secured lender “credit bidding” its debt, thereby attempting to become the owner of the collateral or, at the very least, serve as the stalking-horse bidder. 

In this situation, the secured lender is generally not a single lender, but is rather a group of lenders. The bank group will have spread the risk of the loan by syndicating the debt, appointing an agent bank and dividing the credit among a group of banks that often, have purchased the debt from the initial participants to the syndicated loan. Working usually with a thick credit agreement and hundreds of collateral agreements, the agent represents the bank group, sometimes with unanimous approval from the group, and other times with only majority support.

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