How It Works
- 1
Company enters Chapter 11 with $100M secured debt
- 2
Assets are sold through 363 auction process
- 3
Secured lender can credit bid their $100M claim
- 4
No cash required—debt effectively converts to ownership
- 5
Other bidders must pay cash, creating competitive advantage
Key Mechanics
Section 363 of Bankruptcy Code governs asset sales
Courts can limit credit bidding for 'cause'
RadLAX case (2012) confirmed broad credit bid rights
Strategic buyers must outbid with cash
Regulatory Context
Bankruptcy Code Section 363(k) provides credit bid rights. Courts have discretion to limit for cause, but this is rare.