In a docket crowded with blockbuster cases this term, the Supreme Court’s decision concerning the circuit split over cramdown plans precluding credit bidding by secured lenders may not stoke as much passion or fury as the cases concerning the Patient Protection and Affordable Care Act or Arizona’s immigration law, but RadLAX Gateway Hotel v. Amalgamated Bank, 132 S. Ct. 845 (2011), is arguably one of the more important business bankruptcy cases in over a decade. The issue in the case involves a bankruptcy plan that is confirmed over the dissent of a secured creditor (a “cramdown plan”), and whether the cramdown plan may preclude the secured creditor from “credit bidding” in an auction for the collateral that secures its claim.

The practice of credit bidding allows a secured creditor to bid on such collateral when it is sold at a bankruptcy auction using, not cash, but a credit against the debt. This allows the secured creditor to bid up to the amount of the debt without paying additional cash, ensuring that either the debt will be paid in full (if the collateral is sold to another party for an amount at least as great as the debt), or the secured creditor can take back its collateral (to prevent a sale of the collateral for less than the amount of the debt). The point is to ensure that the secured creditor receives the collateral’s “indubitable equivalent.”

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