Third Circuit Delivers Key Decision on Credit Bidding


Publication| Bankruptcy & Corporate Restructuring

On March 22, 2010, the U.S. Court of Appeals for the Third Circuit addressed whether pursuant to a plan of reorganization a debtor may sell assets free and clear of all liens at an auction at which the secured creditor is not permitted to credit bid (i.e., to bid its secured debt at auction in lieu of cash consideration). A divided three judge panel held that a debtor may proceed with a plan that provides for a sale of assets free and clear of all liens at an auction that does not allow the secured creditor to credit bid.

The appeal arose from the bankruptcy cases of Philadelphia Newspapers, LLC (Debtors). The Debtors owned and operated print newspapers. Prior to their petition date, the Debtors financed the acquisition of their assets through a $295 million loan provided by a consortium of lenders (Lenders). The Debtors later defaulted and filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code (Code) in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania.

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