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The Bankruptcy StrategistFeaturesBankruptcyLitigationMergers and Acquisitions

Increased Bankruptcy M&A Activity Should Provide Attractive Opportunities for Lenders

By Joel H. Levitin and Richard A. Stieglitz Jr.
July 01, 2022

It seems clear that bankruptcy filings inevitably will increase in the near future, because of rising interest rates, pandemic-related micro-economic forces, global strife, and other macro-economic factors and their continuing strain on the global economy and individual businesses.

Consequently, strategic buyers and private equity sponsors should find expanding opportunities to purchase distressed businesses out of bankruptcy. Increased bankruptcy M&A activity also should provide attractive opportunities for lenders. In many situations, these transactions may be more attractive than non-bankruptcy financings, because the buyer should be able to assume only very specific and limited liabilities of the target. Although bankruptcy may add complexities and procedural issues, lenders generally should be able to minimize any associated risks by following the recommendations below.

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Bankruptcy Acquisition Process As It Relates to Financing

Bankruptcy Code §363(b)(1) provides that a debtor, "after notice and a hearing, may … sell, … other than in the ordinary course of business, property of the estate …" independent of a reorganization plan. The 363 sale process typically includes an interim hearing on bidding and sale procedures, an auction (if there are multiple bidders), and ultimately a sale approval hearing after notice of the proposed sale and an opportunity to object is provided to parties-in-interest.

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