In the realm of bankruptcy sales, the role of a stalking horse bidder in a Section 363 sale is crucial. This bidder sets the baseline bid, protecting the debtor from receiving unreasonably low bids for its assets. In return, the stalking horse bidder receives certain protections, such as a break-up fee and reimbursement of reasonable expenses, which are outlined in the asset purchase agreement.
However, there are key issues that a stalking horse bidder must consider. These include the method of payment of bid protections, especially if a secured creditor submits a credit bid, and ensuring timely payment of the bid protections. The bidder must also ensure that the debtor’s obligation to pay the bid protections constitutes a super priority administrative expense claim, which has priority over all other claims or interest.
In the event of an auction, the stalking horse bidder must ensure that it can use its rights to its advantage. This includes receiving a credit equal to the bid protections and having the amount of the bid protections netted out of the purchase price. Lastly, all provisions regarding bid protections should survive the termination of the asset purchase agreement. Read the full article here.