The Commercial Finance Association (CFA), together with nine other trade associations in the financial services industry, including the Equipment Leasing and Finance Association, have submitted an amicus (friend of the court) brief to the United States Supreme Court in the case RadLAX Hotel v. Amalgamated Bank.
The case involves the right of a secured lender to “credit-bid” when its collateral is sold in the context of a Chapter 11 plan of reorganization pursuant to the Bankruptcy Code. In RadLax, the Chapter 11 debtor sought to confirm, over the objection of its secured lender, a Chapter 11 plan of reorganization that contemplated an auction sale of the secured lender’s collateral but prohibited the secured lender from using its debt, rather than cash, to bid at the auction.
The brief argued that a secured lender’s right to credit-bid is a fundamental right, protected by the Bankruptcy Code and universally recognized under state law. As secured lenders have long relied on the right to credit-bid to protect themselves against potential undervaluation of their collateral in bankruptcy, allowing debtors to bar credit-bidding in the context of a Chapter 11 plan would increase the risk of undervaluation, and thus increase the cost and reduce the availability of secured credit.
“The right of a lender to credit-bid is a basic tenet of secured lending. It is gratifying to see CFA participating in an industry-wide effort to protect this right and advocating for its membership before the United States Supreme Court,” said Jonathan Helfat, CFA co-general counsel and partner at Otterbourg, Steindler, Houston and Rosen.
According to Richard M. Kohn, also CFA co-general counsel and principal of Goldberg Kohn, “It was truly a pleasure to participate in this joint effort by many of the nation’s leading financial services trade associations.”
The other trade associations who joined in the brief were The Loan Syndications and Trading Association, The American Bankers Association, The Clearing House Association, The Commercial Real Estate Finance Council, The Equipment Leasing and Finance Association, The Financial Services Roundtable, The Managed Funds Association, The Mortgage Bankers Association and the Securities Industry and Financial Markets Association.