In an opinion that has created the most significant bankruptcy-related circuit split in recent years, last week the U.S. Court of Appeals for the Seventh Circuit in In re River Road Hotel Partners, LLC1 vindicated secured lenders’ unqualified right to credit bid on asset sales under a chapter 11 plan. The Seventh Circuit in River Road rejected the rationale of the U.S. Court of Appeals for the Third Circuit in In re Philadelphia Newspapers, LLC.2 On the day Philadelphia Newspapers was argued before the Third Circuit, this column urged the court to uphold certain vital secured creditor protections embedded in the Bankruptcy Code, a view that was ultimately embraced in Judge Thomas L. Ambro’s dissenting opinion.3

The majority in Philadelphia Newspapers upheld a “cram down” plan under the “indubitable equivalent” prong of Bankruptcy Code §1129(b)(2)(A) and authorized the debtor to sell the secured lenders’ collateral to a stalking horse bidder that included the debtor’s principal without giving the lenders a right to credit bid their claims. Although Philadelphia Newspapers portended an alarming erosion of long-standing secured lenders’ rights, River Road now sets the table for the Supreme Court to eliminate the current state of uncertainty on this issue.

Secured Creditor Protections