A Sigh of Relief from Credit-Bidding Distressed Asset Investors
|Jun 12th, 2012 | Filed under: Alpha Strategies, Regulatory, Today's Post | By: cfaille||
Distressed assets investors may well breathe a sigh of relief, now that the U.S. Supreme Court has affirmed the right of secured creditors to “credit bid,” in other words to offer back to the debtor what they are owed rather than a cash payment, at an asset auction.
The significance of the right to credit bid is that it protects creditors against the threat that their collateral will be sold at a depressed price. This is a perfectly appropriate safeguard, and key parts of corporate bankruptcy law in the U.S. were clearly drafted with this thought in mind. Unfortunately, careless drafting by Congress and (thirty years later) a hyper-literalist reading by two appellate courts put that safeguard in jeopardy.
The Supreme Court has set this right in RadLAX Gateway v. Amalgamated Bank (2012).
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Christopher Faille is a Jamesian pragmatist. William James has taught him, for example, that "you can say of a line that it runs east, or you can say that it runs west, and the line per se accepts both descriptions without rebelling at the inconsistency."
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