Supreme Court Upholds the Right to “Credit bid” in RadLAX Gateway Hotel, LLC, et al. v. Amalgamated Bank


The secured lender industry experienced a collective sigh of relief on May 29 after the Supreme Court ruled in RadLAX Gateway Hotel, LLC, et al. v. Amalgamated Bank that credit bidding remains a viable option to protect collateral in a cramdown bankruptcy plan. Expressly inscribed in Sections 363(k) and 1129(b)(2)(A) of the Bankruptcy Code, credit bidding has long been understood as a fairly uncontroversial right; until recently. In the past three years, both the Third and Fifth Circuits concluded that a debtor could sell assets free of liens in a Chapter 11 plan without permitting credit bidding. (In re Philadelphia Newspapers, LLC, 599 F.3d 298 (3 rd Cir. 2010) and In re Pacific Lumber Co., 584 F.3d 228 (5 th Cir. 2009)). Recognizing the negative impact these decisions could have on the lending industry, the Supreme Court agreed to hear the issue.

To confirm a Chapter 11 plan over the objection of a secured creditor, a plan proponent must satisfy one of three requirements, set out in Section 1129(b)(2)(A), for the plan to be considered “fair and equitable” with regard to the dissenting secured creditor. The plan must provide (in the disjunctive) that (i) the secured creditor retains its lien on the property and receives deferred cash payments, (ii) the property is sold free and clear of the lien “subject to section 363(k),” and the creditor receives a lien on the proceeds of the sale, or (iii) the secured creditor receives the “indubitable equivalent” of its claim. The principle behind each of the subsections above is that fair treatment of a dissenting secured creditor requires it remain protected to the full value of its collateral: either by maintaining its current lien on the collateral, receiving the proceeds from a fair market value sale of the collateral, or exchanging its current collateral for collateral of equivalent value and risk.

Please see full alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Mintz Levin | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.