Third Circuit Holds Plan Providing for Asset Sale Free and Clear of Liens Need Not Allow Secured Creditors to Credit Bid at Such Sale: In Re Philadelphia Newspapers, LLC, et al.

Attached is an alert memo summarizing and considering the implications of the recent ruling by the U.S. Court of Appeals for the Third Circuit in In re Philadelphia Newspapers, LLC, et al., which held that the debtors were permitted under Section 1129(b)(2)(A) of the Bankruptcy Code to pursue a sale free and clear of their secured lenders’ liens under a plan of reorganization without allowing the lenders to credit bid their debt at the auction. The Third Circuit thus joined the recent Fifth Circuit decision in In re Pacific Lumber Co. in holding that a sale pursuant to a plan of reorganization does not need to afford dissenting secured creditors with a credit bid right so long as the plan provides the secured creditors with the “indubitable equivalent” of their secured claims. In so holding, these Courts rely almost entirely on what they perceive to be “plain language” of Section 1129(b)(2)(A) of the Bankruptcy Code, i.e., as providing three distinct alternative paths for confirming a chapter 11 plan over a dissenting class of secured creditors.