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Stalking Horse Bidder in Section 363 Sales: Benefactor or Predator?
Debtors and creditors committees in Chapter 11 cases often regard a “stalking horse” bidder as a benefactor of most or all stakeholders, for it enhances the market for the sale of the debtor's assets as a going concern in a section 363 sale. Outside of U.S. bankruptcy usage, and for the vast majority of its life, the term “stalking horse” has referred to an artifice for predators. In some circumstances, a stalking horse bidder in a section 363 sale can more closely resemble the term's original meaning.
The Stalking Horse Bidder As Benefactor
The stalking horse bidder as benefactor is conceived of as walking ' or trotting briskly, where necessary to preserve value ' through several stages, as follows: 1) debtor and stalking horse agree on the assets to be sold, their price, the timing of the sale, the amount of the large deposit the stalking horse and other bidders must pay, and the stalking horse's binding commitment to close if no higher qualified bid is made within the relevant period; 2) bankruptcy court approval of bidding procedures (including financial incentives for the stalking horse, like break-up fees and bid protections); 3) the court pronouncement of clear rules for the rest for the sales process; 4) notice of the proposed sale is given to potential bidders (who are often actively solicited by an investment banker employed by the debtor's estate); 5) qualified bids are received by the debtor based upon the stalking horse agreement as a template as to non-price terms (facilitating apples-to-apples comparisons of bids) with bidders relying on due diligence compiled by the stalking horse; 6) an auction is conducted; and 7) a sale is closed, with the bidder that made the highest and best qualified bid paying cash and taking the assets free and clear of liens and encumbrances.
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