I (along with every other bankruptcy blogger) wrote extensively on the Fisker decisions from Delaware limiting a secured creditor's right to credit bid. My original post is here, and some other good discussion can be found here and here.
Yesterday, Judge Huennekens entered a Memorandum Opinion (the opinion can be found here) that similarly capped the note-buyer/secured creditor's credit bid in the Free Lance-Star Publishing case. The case appears to have some obvious similarities to Fisker (i.e., a note-buyer's credit-bid right was limited) but also many differences (the FLS opinion contains an express finding of "inequitable conduct" by the creditor).
Judge Huennekens was clearly displeased with what he perceived to be a loan-to-own strategy:
"From the moment it bought the loan from BB&T, DSP pressed the Debtor 'to walk hand in hand' with it through an expedited bankruptcy sales process. It was a classic loan-to-own scenario. DSP made no secret of the fact that it acquired the Loan in order to purchase the Company. It planned from the beginning to effect a quick sale under Secion 363 of the Bankruptcy Code at which it would be the successful bidder for all of the Debtors' assets utilizing a credit bid." See Memorandum Opinion at 12.
The note balance was approximately $38 million, but the Court restricted DSP's right to credit bid to just under $14 million. The Court's rationale, echoing the "robust sales process" concerns of Fisker, was:
"The confluence of (i) DSP's less than fully-secured lien status; (ii) DSP's overly zealous loan-to-own strategy; and (iii) the negative impact DSP's misconduct has had on the auction process has created a perfect storm, requiring curtailment of DSP's credit bid rights. First, the Debtor's business operation necessarily includes unemcumbered assets upon which DSP has no lien. The credit bid amount must be configured to prevent DSP from credit bidding its claim against assets such as the FCC licenses that are not within the scope of its collateral pool. Second, DSP's loan-to-own strategy has depressed enthusiasm for the sale in the marketplace. Potential bidders now perceive the sale of the business to DSP as a fait accompli. Those parties are not inclined to participate in an auction process. Third, limiting DSP's credit bid will attract renewed interest in the bidding process and will serve to increase the value realized for the assets." Memorandum Opinion at 15.
It is unclear from the Opinion whether the Court keyed the credit-bid cap to the lender's note-purchase price (like in Fisker), or did something else altogether. At a March 25, 2014 hearing, it stated that "the Court wishes it had more information with regard to the amount ... that the lender paid ... for the loan." (3/25/14 Hrg. Tr (quoted at Dkt. No. 177).) DSP has filed a motion for leave to take an interlocutory appeal. The auction and sale hearing are set in mid-May, so that may leave some time for some appellate guidance on Section 363(k).