So This Is Why Judges Bother to Write Dissenting Opinions -- Seventh Circuit Decision on Credit Bidding Vindicates Judge Ambro's Philadelphia Newspapers Dissent

Critics of last year's decision on credit bidding by the Third Circuit Court of Appeals in the Philadelphia Newspapers chapter 11 case welcomed the Seventh Circuit's recent unanimous opinion in River Road Hotel Partners LLC. The Seventh Circuit expressly adopted the Judge Tom Ambro's cogent analysis in his Philadelphia Newspapers dissent.   

In River Road, the debtors sought to rely on Philadelphia Newspapers in putting forward a plan of reorganization that proposed an auction of the secured lenders' collateral, but would have expressly denied the lenders the right to credit bid their debt. The rationale in both cases rested on a formalistic reading of Section 1129(b)(2)(A) of the Bankruptcy Code. That section describes three different means by which a plan of reorganization can be found to be "fair and equitable" and thus capable of being confirmed without the consent of a secured lender class (i.e., "crammed down"):

   (i) lender retention of liens securing the obligations and receipt of the present value of its secured claim,

   (ii) sale of collateral free and clear of liens but subject to credit bidding, or

   (iii) the realization by the creditor of the "indubitable equivalent" of its secured claim.

Notwithstanding the express reference in subsection (ii) of Section 1129(b)(2)(A) to the right to credit bid in connection with a sale "free and clear" of liens, the Third Circuit in Philadelphia Newspapers held that a sale "free and clear" could also take place without allowing the lenders to credit bid under subsection (iii), the "indubitable equivalent" prong. The River Road debtors asked the bankruptcy court to follow the Third Circuit's conclusion that the "plain meaning" of the use of the disjunctive "or" in the statute shows that subsection (ii) is not the "exclusive means" by which a secured lender's collateral may be sold "free and clear" under a plan of reorganization and that, so long as the debtor or other plan proponent could show that the "indubitable equivalent" prong were being satisfied, the opportunity to credit bid need not be provided.

Read this article in its entirety at Kelley Drye & Warren LLP's Bankruptcy Law Insights blog

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