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distress

Credit Bid

"Uses debt as currency to acquire assets"

The right of a secured creditor to bid the amount of their debt as currency in a bankruptcy auction, rather than requiring cash.

How It Works

  1. 1

    Company enters Chapter 11 with $100M secured debt

  2. 2

    Assets are sold through 363 auction process

  3. 3

    Secured lender can credit bid their $100M claim

  4. 4

    No cash required—debt effectively converts to ownership

  5. 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.