Junior debt – sometimes referred to as subordinated debt, occasionally talked about as mezzanine debt – is referred to as such because it ranks behind other, more senior, debt owing by the same borrower. Junior creditors can come in many different shapes and sizes and can include shareholder lenders and specialist debt investors or funds.

In the current difficult business environment, lenders will be weighing up their options in respect of defaulting borrowers – for some lenders that might include attempting to own the underlying business through a credit bid. Where debt is trading at a discount, a credit bid can also be a cost-efficient opportunity for an opportunistic buyer to acquire assets. So, what is a credit bid and what issues might such parties need to consider in using one?   

What is a credit bid?

Beauty Brands, LLC, along with two subsidiaries and affiliates, has filed a petition for relief under chapter 11 in the Bankruptcy Court for the District of Delaware (Lead Case No. 19-10031).

Angel Medical Systems, Inc., a developer of medical devices based in Eatontown, NJ, has filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Case No. 18-12903).

White Eagle Asset Portfolio, LP, has filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Lead Case No. 18-12808).

Checkout Holding Corp. (dba Catalina Marketing), along with ten affiliates and subsidiaries, has filed a petition for relief under chapter 11 in the Bankruptcy Court for the District of Delaware (Lead Case No. 18-12794).

interTouch Holdings LLC and its affiliate, interTouch TopCo LLC, have both filed petitions for relief under chapter 11 in the Bankruptcy Court for the District of Delaware (Lead Case No. 18-12772).

Argos Therapeutics, Inc. (f/k/a Merix Bioscience, Inc.) has filed a petition for relief under chapter 11 in the Bankruptcy Court for the District of Delaware (Case No. 18-12714).

Fairway Energy, LP, along with two subsidiaries and affiliates, has filed a chapter 11 petition for relief in the Bankruptcy Court for the District of Delaware (Lead Case No. 18-12684).

LBI Media, Inc., along with seventeen affiliates and subsidiaries, has filed a petition for relief under chapter 11 in the Bankruptcy Court for the District of Delaware (Lead Case No. 12655).