Divided Third Circuit Panel Denies Secured Lenders Right to Credit Bid

March 24, 2010
In a divided decision, the U.S. Court of Appeals for the Third Circuit in In re Philadelphia Newspapers, LLC affirmed the ruling of the District Court that it is permissible, in some circumstances, for a debtor to sell encumbered assets free and clear of liens without allowing a secured lender to credit bid. The Third Circuit held that the right to credit bid in the context of a section 363 sale does not automatically apply in the context of a sale pursuant to a plan of reorganization. This update examines the decision and its implications, which will impact the strategic considerations of secured lenders in negotiations with their distressed borrowers.