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Maximizing the Value of Assets—It’s the Details that Count

As we reflect on the 10th anniversary of the bankruptcy filing of Lehman Brothers Inc., it’s not difficult to notice that the restructuring industry has changed dramatically over the past decade. Bankruptcy filings are down. Chapter 11 cases that are filed are of shorter duration, and sales under Section 363 of the U.S. Bankruptcy Code outnumber classic plans of reorganization.

However, after a modest downturn in available capital to fund new deals, liquidity is back. Many players in our market are looking to do deals involving distress or otherwise financially challenged assets, both in and out of bankruptcy. The filing of bankruptcy and a sale under Section 363, however, are not a panacea to fix all problems associated with a financially challenged transaction. Careful attention must be paid to the details of such a transaction to make sure the outcome is what the parties expect.

This month’s JCR addresses certain factors that parties should consider when looking at a sale transaction to make sure that they are protecting or enhancing the value of the transaction. Our authors address some of the nuances that exist in transactions that may get overlooked, resulting in disappointing results for the parties.

Christopher Jarvinen from Richards Kibbe & Orbe LLP starts us off with a reminder that when we are structuring a securitization to maximize the value of the underlying assets, we must be careful and diligent in creating that structuring. The tension between securitization and bankruptcy law is constantly developing, and having a transaction deemed a loan instead of a true-sale could have a profound impact on the value of the transaction for its intended beneficiaries.

Next is an article by Allison Ladd, my colleague at Hahn & Hessen LLP, and myself reminding readers of the importance of proper notice when attempting to sell assets free and clear of liens under Section 363 of the Bankruptcy Code. If a court, after the fact, believes notice was improper, either because the creditor should have gotten actual notice or the constructive notice was insufficient because of the timing or placement, the benefits of Section 363 could be eviscerated, leaving the purchaser responsible for liabilities it never intended to assume.

Jeffrey Cohen and Gabriel Olivera of Lowenstein Sandler LLP then explore the dicey world of credit bidding. In today’s aggressive loan-to-own environment, it is important to focus on the factors considered by Bankruptcy Courts in limiting credit bidding for secured lenders. When these lenders purchase a loan, enter into a forbearance agreement, or provide additional financing as a prelude to owning the assets through a credit bid in a subsequent bankruptcy, careful attention must be paid to the effect credit bidding may have on the competitive bidding process in the bankruptcy and the judge’s reaction to how it might “chill” the process.

Richelle Kalnit of Hilco Streambank reminds us about the forgotten assets that can be monetized to maximize the value of the debtor’s estate.

Finally, Brendan Bissell and Jennifer Stam of Goldman Sloan Nash & Haber LLP in Toronto warn that a recent case in Canada suggests that professionals should proceed with caution when closing an insolvency transaction while the period to appeal the trial court’s decision is running.

Mark Indelicato

Mark S. Indelicato

Hahn & Hessen LLP

Mark S. Indelicato is managing partner of Hahn & Hessen LLP. He specializes in the practice of bankruptcy and creditors’ rights. He has been counsel to official unsecured creditors’ committees in cases that include Gymboree, Vertellus Specialties Inc., Furniture Brands International Inc., Reichhold Industries, and some of the largest subprime mortgage lender bankruptcies filed, including New Centruy TRS Holdings Inc. and American Home Mortgage Corp. Indelicato is past TMA Global chair and president and past president of the New York Chapter.

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