Secured Creditors Are Not Entitled to Credit-Bid in a Sale Through a Reorganization Plan
by: Jason A. Nagi
Polsinelli Shughart PC;
New York
Christopher A. Ward
Polsinelli Shughart PC; Wilmington, Del.
Philadelphia Newspapers LLC and its related debtor entities, as debtors and debtors-in-possession (the debtors), proposed a plan of reorganization that included, among other things, the sale of substantially all of their assets by public auction pursuant to §363 of chapter 11 of title 11 of the U.S. Bankruptcy Code. The plan contemplated that a stalking-horse bidder, comprised of several equity investors, would submit a cash bid in the amount of $30 million, which would be used to pay down the more than $300 million of secured debt that the debtors owed to their senior secured lenders (the lenders). The reorganization plan further contemplated an additional $36 million distribution to the lenders in the surrender of real property—leaving the lenders with an approximately $244 million shortfall.
