Bankruptcy lawyers who are regularly involved in distressed m&a deals have been wondering for the past few months about the potential fallout from Philadelphia Newspapers. In that case, as previously described on this site, the Third Circuit Court of Appeals upheld the debtor’s efforts to deny its secured lenders the right to credit bid in connection with an auction held under a non-consensual plan of reorganization pursuant to Section 1129(b)(2)(A) of the Bankruptcy Code. The majority opinion in Philadelphia Newspapers was met by a lengthy dissent from the leading bankruptcy expert on the Third Circuit panel, Judge Thomas Ambro. 

In what appears to be the first decision since then on an attempt to use Section 1129(b)(2)(A) to circumvent a secured lender’s right under Section 363(k) to credit bid, Judge Bruce Black of the United States Bankruptcy Court for the Northern District of Illinois denied a debtor’s proposed bidding procedures motion. Judge Black, in In re River Road Hotel Partners LLC, expressly rejected the reasoning of the Philadelphia majority, stating that he found “Judge Ambro’s well-reasoned dissent more persuasive.”  

The debtors in River Road have asked Judge Black to certify an appeal directly to the Seventh Circuit, so there may well be an opportunity shortly for another Court of Appeals to weigh in on this highly contentious issue.