Client Alert

The Saga of a Secured Lenders Right to Credit Bid Continues - Seventh Circuit Rejects Third Circuit Approach and Upholds Secured Lenders Right to Credit Bid in Sale Pursuant to a Bankruptcy Plan

June 30, 2011

The Finance and Restructuring Practice

A secured lenders well-worn tools to protect its security interest have included the right to credit bid when its collateral is being sold. Credit bidding refers to the ability of a secured lender to participate in a foreclosure or other form of sale of assets that are subject to its liens and, where the cash bids yield less value than the secured lender believes its collateral to be worth, to bid all or a portion of its debt in lieu of cash. Because any cash the secured lender pays would be round-tripped back to itself as proceeds of collateral, the lender need not actually put cash on the table; instead, it reduces the underlying debt by the amount of its credit bid to take title to the collateral.

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