Buying assets from a company while it is in bankruptcy can be an excellent means of acquiring valuable assets free and clear of liens, claims, and encumbrances, and sometimes at bargain prices. However, there also are unfavorable aspects to these sales. In his Los Angeles Lawyer article, “Bankruptcy Bargains,” Senior Counsel Asa Hami discussed the pros and cons of buying bankruptcy assets, including the benefits available only to “stalking horse” bidders.
According to Hami, there are generally four to five main potential benefits for a purchaser of bankruptcy assets, with a few others specific to the stalking horse bidder. “The stalking horse buyer’s price establishes the ‘floor’ for the assets, with that price tested by the market through the auction,” wrote Hami. “It is therefore, important to get in early and secure the stalking horse slot in any bankruptcy sale, especially one involving substantial assets requiring significant and costly due diligence.”