Actionable Ideas for Companies and Sponsors

Buyers are Increasingly Pursuing Section 363 Asset Purchases

Pursuant to Section 363 of the Bankruptcy Code, a purchaser can acquire all or substantially all the assets of the debtor, free-and-clear of all liens, claims, or other encumbrances. Given the skyrocketing costs of large bankruptcy reorganizations, the use of Section 363 sales is growing, as Section 363 asset purchases can be completed outside the plan of reorganization process at a fraction of the time and cost of traditional restructurings. Recent asset sales have been completed within 45 days of the petition date.

Motivated purchasers in a section 363 purchase often seek to become the “stalking horse” bidder given the protection of a breakup fee. More importantly, the stalking horse bidder’s asset purchase agreement is used as the baseline document that all other interested parties must “bid on”, and the stalking horse bidder also often has an advantage of completing their due diligence first. In addition, the 363 sale process enables secured creditors to place a “credit bid” that is not restricted to making only a cash bid for the assets, as they can opt to bid the amount of debt owed them by the debtor on the loan for which the asset served as collateral.