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US Supreme Court to Rule on Credit Bidding: RadLAX Gateway Hotel LLC v. Amalgamated Bank
Practical Law Legal Update 4-516-6088 (Approx. 4 pages)
US Supreme Court to Rule on Credit Bidding: RadLAX Gateway Hotel LLC v. Amalgamated Bank
by PLC Finance and Practical Law Bankruptcy & Restructuring
| Published on 14 Dec 2011 • USA (National/Federal) |
US Supreme Court to resolve the Circuit court split concerning the right of secured lenders to credit bid in a sale of their collateral conducted under a plan of reorganization.
On December 12, 2011, the US Supreme Court granted the petition for a writ of certiorari in RadLAX Gateway Hotel, LLC v. Amalgamated Bank on the issue of whether secured lenders are guaranteed the right to credit bid their debt in a sale of their collateral conducted under a cramdown plan of reorganization. The Circuit courts are currently split over this issue:
- In In re Philadelphia Newspapers, LLC, the US Court of Appeals for the Third Circuit held that secured lenders are not guaranteed this right (see Legal Update, US Court of Appeals Affirms Philadelphia News District Court Decision and Practice Notė, In Dispute: Philadelphia Newspapers). The US Court of Appeals for the Fifth Circuit issued a similar decision in In re Pacific Lumber Co.
- Conversely, in In re River Road Hotel Partners, LLC, the sister case to RadLAX, the US Court of Appeals for the Seventh Circuit held that secured lenders are guaranteed this right (see Legal Update, Seventh Circuit Affirms Bankruptcy Court Credit Bidding Decision in River Road Hotel Partners).
There has been a growing trend of debtors proposing plans involving sales of collateral, but preventing lenders from credit bidding. If the Supreme Court rules in favor of the Third Circuit's holding, credit may become more expensive as lenders move to protect themselves.
The Supreme Court is expected to hear the case in March or April 2012, with a decision to be issued during the summer.
To learn more about credit bidding and cramdown plans, see Practice Notes, Credit Bidding in Section 363 Bankruptcy Sales and Chapter 11 Plan Process: Overview: Confirmation of a Plan: Cramdown Plans.