- A stalking-horse bid is an initial bid on the assets of a bankrupt company. The bankrupt company will choose an entity from a pool of bidders who will make the first bid on the firm’s remaining assets. The stalking horse sets the low-end bidding bar so that other bidders can not underbid the purchase price.
How do stalking horse bids work?
A stalking-horse bid is an initial bid on the assets of a bankrupt company. The bankrupt company will choose an entity from a pool of bidders who will make the first bid on the firm’s remaining assets. The stalking horse sets the low-end bidding bar so that other bidders can not underbid the purchase price.
Is a stalking horse bid binding?
To compensate the stalking horse for its time and effort, certain incentives are typically negotiated, subject to bankruptcy court approval. That way, the debtor’s agreement to bidding incentives is binding on the debtor at the time it signs the purchase agreement, not later upon bankruptcy approval of such incentives.
What is a stalking horse sales process?
In the context of section 363 sales in bankruptcy, a stalking horse is a bidder used to set the purchase price floor so other bidders can know the minimum to bid for the target company. The opportunity to negotiate the basic contract terms and structure of the transaction and the bidding procedures.
What is a stalking horse?
A stalking horse is a buyer who has agreed to make a minimum bid before a bankruptcy auction. The sale process will now be conducted without a stalking horse bid. The stalking horse bidder typically enters into a sale contract with the debtor for the subject assets, thereby setting a floor, or minimum bid.
What is a naked auction?
Now, Kodak’s failure to secure a stalking horse for its digital capture and imaging patents has the company preparing to hold a “naked” auction, in which no suitor makes an opening bid prior to the start of the auction.
What is a dark horse bid?
In politics, a “dark horse” is a candidate for office for whom little is known or for whom expectations are low, but who then goes on to unexpectedly win or succeed.
What is a topping fee?
In a 363 auction a type of break-up fee that the debtor agrees to pay to an initial proposed purchaser (the stalking horse) if the proposed purchaser is not the prevailing bidder in the auction.
How do you use stalking horse in a sentence?
He doesn’t actually want to be elected—he’s just a stalking horse who’s trying to see how fractured our party really is. 2. Something that conceals a person’s true intentions. I’m afraid that this deal is just a stalking horse for a more nefarious long-term plan.
How does debtor-in-possession financing work?
Debtor-in-possession (DIP) financing is financing for firms in Chapter 11 bankruptcy that allows them to continue operating. Lenders permit DIP financing as it allows a firm to continue operations, reorganize, and eventually pay off debts.
What is a cover bid in finance?
The bid-to-cover ratio is the dollar amount of bids received in a Treasury security auction versus the amount sold. A high ratio is an indication of strong demand.
What is overbid protection?
What is that? The short and easy answer is that an overbid is an auction conducted during a hearing to approve a bankruptcy sale. You see Bankruptcy Code § 363 authorizes a debtor-in-possession or Trustee, to sell property of the estate other than in the ordinary course of business.
What is credit bidding?
Credit bidding is a mechanism, enshrined in the US bankruptcy legislation, whereby a secured creditor can ‘bid’ the amount of its secured debt, as consideration for the purchase of the assets over which it holds security.
What is the meaning of to stalk someone?
Stalking is the act of following someone or something very closely and watching its every move. The verb to stalk means to pursue carefully, and often stealthily. It was originally used to describe hunters following their prey and waiting for the precise moment to attack.
How does a 363 sale work?
A 363 Sale refers to the sale of an organization’s assets. The bankruptcy court grants the debtor-in-possession or trustee the power to sell the organization’s assets even when there is an objection from junior creditors. It is also referred to as subordinated debt., after a court hearing of their petition.
A stalking-horse bid is a first bid on the assets of a bankrupt firm that is made after the company has filed for bankruptcy. The insolvent corporation will select one entity from a pool of bidders to be the first to make a bid on the firm’s remaining assets once it has declared bankruptcy. The stalking horse sets the low-end bidding bar so that other bidders will not be able to undercut the buying price established by the stalking horse. The word “stalking horse” comes from a hunter who attempted to cover himself behind either a real or a false horse in order to avoid detection.
- In bankruptcy auctions, a stalking-horse bid is an early offer on the assets of a bankrupt firm that establishes the low-end bidding bar so that later bidders cannot undercut the acquisition price. Following the stalking-horse bid, other purchasers will be able to submit competing offers. Different incentives are offered to stalking horse bidding participants, including expense reimbursements, breakdown payments, and breakup fees.
How a Stalking-Horse Bid Works
When a failing firm sells its remaining assets, it might use the stalking-horse bid approach to prevent obtaining cheap bids from competitors. Following the submission of the stalking-horse bidder’s offer, other potential purchasers will have the opportunity to submit competing offers for the company’s assets. The bankrupt corporation expects that by selecting the low end of the bidding range, it would be able to earn a bigger return on its assets. Bankruptcy proceedings are made available to the public.
Stalking-horse bidders have the ability to negotiate the specific assets and liabilities that they wish to buy, in most cases.
Advantages and Disadvantages of a Stalking-Horse Bid
Considering that the stalking-horse bid is the first offer made on an asset or firm, the bankrupt company will often provide the stalking-horse bidder with a number of incentives. Some incentives include repayment of expenses, breakup costs, and exclusivity for a specific amount of time. In exchange for its efforts, the stalking-horse bidder receives compensation. It has the ability to negotiate the terms of the acquisition and select the assets and liabilities that it intends to acquire as part of the transaction.
The stalking-horse bidder will put forth tremendous effort in order to earn the advantages of being the first bidder on the auction block.
This study will need the stalking-horse bidder to put up the necessary time and resources.
The public disclosure of the stalking-offer horse’s also carries a certain amount of danger.
Thus, the second corporation takes use of the stalking-due horse’s diligence to its advantage. Additionally, the stalking-horse bidder may need to spend a significant amount of time negotiating the conditions of the transaction, which may increase overhead expenses even more.
Example of a Stalking Horse
Stalker bidder Valeant Pharmaceuticals International Inc. (NYSE: VRX) has put an offer for some assets of the insolvent Dendreon Pharmaceutical Company. On January 29, 2015, the company made an initial cash offer of $296 million. Although there were other competitive offers, the price eventually raised to $400 million a week later as a result of the other proposals. Valeant’s participation as a stalking-horse bidder was officially accepted by the bankruptcy court during a bankruptcy hearing. If the company’s offer was unsuccessful, it was entitled to a breakup fee as well as repayment of expenses.
The bankruptcy court ultimately allowed the sale to Valeant for $495 million, with a new transaction incorporating additional assets thrown into the mix.
Bankruptcy Sales and The Stalking Horse
A number of advantages exist for purchasers of assets sold according to Section 363 of the Bankruptcy Code or pursuant to a plan of reorganization, but they also present a number of potential barriers, particularly for purchasers who are unfamiliar with the bankruptcy sales procedure. These include I obtaining assets free and clear of liens, (ii) protection from fraudulent transfer claims, (iii) protection against certain liabilities and certainty with respect to the enforceability of the transaction documents as provided in the bankruptcy court’s order, (iv) relief from the requirement to obtain consent to the assignment of certain contracts, (v) an expedited waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and (vi) exemption from the requirement to obtain consent to certain contracts The criteria that buyers frequently find unfavorable are essentially those that are related with a debtor’s obligation to acquire the highest and best value for the assets in question.
These considerations include, among other things, the longer period of time typically required to complete such transactions, the requirement for court approval (including the resolution of any objections to the sale), and the uncertainty associated with the auction process necessary to maximize the value of the debtor’s estate.
The “stalking horse” bidder is the first bidder with whom the debtor negotiates a purchase agreement and is referred to as such.
In bankruptcy proceedings, potential bidders should not be misled by the term’s origins because very little will be concealed, and the purchaser will be required to disclose much more information about the deal, as well as information about the purchaser himself or herself, than he or she would be required to disclose in a typical nonpublic transaction.
- Typically, the initial bidder must invest more money than the other bids in order to negotiate the contract, do due diligence, and otherwise establish the “floor” for the terms of the transaction.
- If the potential purchaser does not get these benefits, he or she may not agree to act as the stalking horse in the first place.
- If a stalking horse demands financial incentives, this may be in conflict with the debtor’s obligation to get the highest and greatest value possible, as well as obligations of the bankruptcy code.
- Regardless, the stalking horse will very certainly be exposed to the possibility of having its contract publicly publicized during the bankruptcy process, because the bankruptcy court has not yet approved the proposed incentives for the stalking horse.
- This would make it impossible for the bankruptcy court to grant bid incentives for the stalking horse to begin with, because another bidder has promised to acquire the assets without the benefit of bid incentives.
- So the debtor’s assent to bidding incentives becomes legally enforceable on the debtor at the time of signing the purchase agreement, rather than later, when the bankruptcy court approves the bid incentives.
- Expense reimbursement is provided.
Fees and expenditures incurred in connection with legal and financial advice, due diligence, and other reasonable expenses made in connection with the transaction are eligible to be reimbursed.
The repayment of expenses must be approved by the bankruptcy court, which is normally done in accordance with an order establishing bidding processes and safeguards.
Another point that will most likely be discussed between the stalking horse and the debtor will be the conditions under which the stalking horse is entitled to reimbursement and when the payment is truly due, both of which will be decided by the court.
What constitutes a “higher and superior offer” will almost certainly be the topic of discussion during the negotiating process, especially if the purchase price includes anything besides cash.
Fees for ending a relationship.
Such payments, on the other hand, can be contentious in many countries, and it is crucial to be aware of a jurisdiction’s attitude on such fees before asking them.
It is simply additional money given to the stalking horse in order to persuade it to be the initial bidder and build the basis for other possible bidders in an auction.
While break-up fees may not always result in higher floors being set, in the majority of bankruptcy sales, a break-up fee will almost certainly be requested by a potential stalking horse, and whether or not a break-up fee will be included in the transaction will be one of the issues that will be negotiated between the parties.
- A combined break-up fee and expenditure reimbursement in excess of around 3 percent of the purchase price, as a general rule, is likely to be viewed with heightened suspicion in the majority of jurisdictions.
- The creditors’ committee or the U.S.
- In most cases, a disgruntled potential bidder does not have the legal authority to object to the proposed break-up fee.
- The capacity of a stalking horse to negotiate advantageous bidding processes is perhaps the most critical piece of power a stalking horse can have.
- A stalking horse will be discouraged from attempting to change bidding procedures if they are preapproved in advance.
- Some judges, on the other hand, are apprehensive about approving bidding processes before a stalking horse has been identified.
- In transactions that do not take place in a bankruptcy proceeding, the purchaser will frequently seek to engage into an exclusivity agreement with the seller.
- Although it is not uncommon for a possible purchaser to arrange limited periods of exclusive business with the debtor as part of its efforts to reach a stalking horse purchase agreement with the debtor, it is not recommended.
- Conclusion Initial encounters with bankruptcy procedures may be frustrating and unusual to a prospective purchaser who is inexperienced with the process.
In addition to attempting to negotiate some or all of the provisions described above, the stalking horse can often gain a significant advantage over other bidders simply by virtue of the fact that the stalking horse is the bidder with whom the debtor deals during the course of negotiating the purchase contract.
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Stalking horse offer – Wikipedia
It is referred to as a talking horse offer, agreement, or bid when a bid is placed on a bankrupt company or its assets that is prepared prior to the auction to function as an effective reserve bid. When a court auction is held (or before a court auction), the goal is to maximize the value of its assets while avoiding low bids. Before the auction, the debtor can offerbidding protections like as breakup fees to its best bidder in order to get a talking horse provide from that bidder. For the bidder, these incentives increase the perceived worth of the offering, which may result in a higher price offer prior to the auction’s commencement.
On October 22, 2007, technology companySCO petitioned a bankruptcy court to authorize a transaction under which a purchaser would buy “essentially all assets utilized by the Company in connection with its SCOUNIXBusiness as well as any associated claims in litigation,” according to the company’s filing. If the purchaser, York Capital Management, were to be designated as a stalking horse in subsequent bidding for SCO’s assets and others outbid York, then SCO would be required to pay the purchaser $780,000 in breakup fees and reimbursement of all expenses incurred by York up to $300,000, according to the terms of the agreement.
- Steve and Barry’s LLC, a retailer of casual wear, filed a stalking horse agreement with the United States Bankruptcy Court for the Southern District of New York on August 4, 2008, according to court records.
- Reuters reported on July 27, 2009, that the Swedish telecommunications company Telefon AB L.M.
- An announcement about a prospective stalking horse transaction was made by the Texas Rangers Major League Baseball franchise on July 8, 2010.
- Snyder, the court-appointed restructuring officer.
- If Greenberg-Ryan had lost, the firm would have won $15 million.” On February 21, 2011, Reuters reported that Blockbuster intends to pursue a $290 million stalking horse deal from Cobalt Video Holdco in order to acquire the company.
- During a bankruptcy auction in 2013, the assets of the company Hostess Brands were sold off for a high price.
- Kodak proposed a stalking horse transaction for $210 million on April 15, 2013, in which Brother Industries would purchase Kodak’s Document Imaging subsidiary in advance of Kodak’s bankruptcy court clearance, which is scheduled for June 2013.
A stalking horse proposal by Landry’s, Inc. was made against Houlihan’s Restaurant, Inc. in the company’s chapter 11 bankruptcy filing in January 2019.
- Henry Owsley is a historical figure (2005). Investment Banking in Difficult Times. Beard Books (ISBN 1-58798-267-6)
- Hillman, William (ISBN 1-58798-267-6)
- City (2004). The Bankruptcy Deskbook is a resource for those who are filing for bankruptcy. City: Practising Law Institute (PLI).ISBN0-87224-139-4
- Practising Law Institute (PLI).
- Financial Times Lexiconfrom theFinancial Times
- “Stalking-Horse Bid”.investopedia.com. Retrieved 9 January 2016
- “Stalking-Horse Bid”.investopedia The SCO Group, Inc. was featured in the May 2006 edition of Financialer Worldwide as the “Stalking Horse” in a Chapter 11 363 sale in the United States. Form 8-K is a ten-point scale. On October 22, 2007, the Securities and Exchange Commission (SEC) released the following statement: “SCO Has a Bid
- Would Like More – Updated.” On October 23, 2007, Groklaw published an article that was later retrieved on September 24, 2013. According to Businesswire.com, “SteveBarry’s Files “Stalking Horse” Agreement,” which was published on August 4, 2008
- “Ericsson Powers Up U.S. Presence With Nortel Deal,” which was published on July 27, 2009, in The Wall Street Journal
- And “Ericsson Powers Up U.S. Presence With Nortel Deal,” which was published on August 4, 2008, in The Wall Street Journal. Texas Rangers’ Proposed July 16 Auction Has Been Cancelled
- “Blockbuster gets $290 million stalking horse bid,” from Reuters on February 21, 2011
- “Google Makes $900 Million Stalking-Horse Bid For Nortel Patents As It Looks To Fend Off Trolls,” from TechCrunch on April 4, 2011
- “Blockbuster gets $290 million P. Milford and D. McCarty are co-authors of this paper (January 31, 2013). In a statement, the CEO of Hostess said that “stalking-horse bids total $858 million.” Bloomberg. Retrieved 2013-01-31.:CS1 maint: multiple names: authors list (link)
- “DesignLine Stalking Horse Bidders”
- “DesignLine Stalking Horse Bidders” (April 15, 2013). “Kodak expects to sell its scanning business to Brother for $210 million in the near future.” engadget.com. 2013-04-15
- Balakrishnan, Anita (2016-06-10). “Gawker Media auction opens with Ziff Davis offer amid bankruptcy”. AOL. CNBC. Retrieved2016-06-10
- s^ Ember and Sydney are two of the most talented people in the world (2016-06-10). “Gawker, which filed for bankruptcy following the Hulk Hogan lawsuit, is offered for sale.” The New York Times is a newspaper published in New York City. ISSN0362-4331. Retrieved2016-06-10
- s^ James Caldwell was born in the town of Caldwell in the state of California (2016-08-16). After the Hogan vs. Gawker battle, Univision is said to be interested in purchasing the insolvent Gawker Media.” PWTorch. As of August 16, 2016, Houlihan’s Restaurants, Inc. has executed an asset purchase agreement
- The sale was made possible through a voluntary Chapter 11 filing
- The restaurants are open and serving customers
- Franchise restaurants are not included in the proceeding.” PR Newswire, retrieved on 2019-11-15
- PR Newswire, retrieved on 2019-11-10
A stalking-horse bid is a type of bankruptcy transaction in which a possible bidder is kept hidden from the public, creditors, and the courts. Most of the time, when a company is about to file for bankruptcy, the company selects an entity from a pool of potential bidders to make the initial bid to purchase the firm’s assets. The selected bidder establishes a standard for all bidders to follow, so that other bidders are unable to offer bids lower the purchase price. Originally used to describe a situation in which hunters would hide behind their horses as they approached closer to their target, the phrase “stalking horse” came from the hunting community.
Therefore, the corporation employs a stalking-horse offer to guarantee that it receives the highest price possible during the auction.
The stalking-horse bidder receives a variety of benefits in exchange for placing the highest first bid, including breakup fees and other benefits.
Essentially, the fee is necessary to repay the original purchaser for the time and resources that were expended throughout the negotiation process.
- In the case of a bankrupt corporation, a stalking-horse bid is the first bid made on their behalf before a public auction takes place. Essentially, a stalking offer serves as the reserve bid, preventing other bidders from underbidding the first proposal. As the first bidder for the assets of a bankrupt firm, the stalking-horse bidder receives compensation for its expenses as well as breakup fees for its efforts.
How a Stalking-Horse Bid Works
In the case of a bankrupt firm, a stalking-horse bid is the first bid made to them before a public auction is held. Essentially, a stalking offer serves as the reserve price, preventing any rival bidders from underbidding the first proposal. The stalking-horse bidder receives expenditure reimbursement and breakup fees for its efforts as the first bidder for the assets of the insolvent firm.
Bidding Procedure for a Stalking-Horse Bid
Bidding methods almost always offer the stalking-horse bidder an edge over other bids in an auction, and this is especially true in online auctions. A stalking-horse bidder might influence the bidding process in a way that is advantageous to itself, despite the fact that the creditor committee, appointed trustee, and the court may all object to particular features of the bidding processes. It has the ability to influence some aspects of the bidding process to its benefit, and other bidders that engage in the process will be required to adhere to the rules and regulations.
When bidding processes are being negotiated, the stalking-horse bidder might negotiate provisions that prevent rival bidders from submitting lower bids than the ones that have already been submitted to the debtor. Some of the elements that the stalking bidder may be able to affect are as follows:
- Overbid amounts that must be met
- Assets are divided into bid lots, which are then sold. Timelines for the bidding procedure
- When a bid is qualified for consideration for inclusion
- Whether the auction is a quiet or open bidding affair
- Is it necessary for the stalking-horse bidder to be aware of opposing bids?
Advantages of Stalking-Horse Bids
When compared to other bids that enter into an agreement that has already been signed with another party, the stalking horse has the option to negotiate the selling conditions, including the legal and financial terms of the transaction. The stalking horse bidder has the ability to select the exact assets and liabilities that it wishes to buy, as well as negotiate representations and warranties with the seller. Representatives and Warranties Generally, representations and warranties are assertions of truth made by a seller as part of their efforts to persuade a buyer to purchase their firm.
The seller guarantees that the business is worth the investment and that the agreement will be terminated if the firm is not profitable.
2. Opportunity to conduct due diligence
The stalking-horse bidder has the advantage of doing due diligence before any other competing bidders since he is the first to submit an offer. The stalking horse is given the opportunity to inspect the company’s financial records, speak with management and staff, and seek any necessary regulatory approvals. Such a chance also provides them with the option to involve creditors, vendors, and significant consumers in order to guarantee that the offer is approved.
3. Bidding protection
When a stalking horse bidder wins the auction, he or she receives bidding protection for the fees paid as the first bidder. Before the auction is made public, it can collect a breakup fee as well as reimbursements for fees paid to recruit legal and financial consultants, undertake due diligence, and spend other expenses prior to the auction being made public. The debtor and the bankruptcy estate each compensate the other for their expenses, which are subject to approval by the bankruptcy court.
Limitations of Stalking-Horse Bids
Because of bidding protection, the stalking-horse bidder does not bear the costs associated with being the first to bid. It may be eligible for a breakup fee as well as expenditure reimbursements for fees paid to employ legal and financial consultants, undertake due diligence, and pay other expenses before the auction is made public, among other things. The debtor and the bankruptcy estate each compensate the other for their expenses, which are subject to approval by the bankruptcy court before reimbursement can begin.
2. The stalking-horse bid may lose at the auction
In an auction, the stalking horse establishes the starting price for the other bids. However, it is possible that the original proposal may be outbid by rival bids, and the stalking horse will be unable to complete the acquisition. The stalking horse, on the other hand, will still be entitled to repayment for the expenses expended during the procedure, subject to the permission of the bankruptcy court.
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- Bankruptcy under Chapter 11 Bankruptcy under Chapter 11 Generally speaking, Chapter 11 is a legal procedure that involves the rearrangement of a debtor’s obligations and assets. Individuals, partnerships, and businesses can take advantage of this opportunity. Period. Go shopping. Go shopping for a while. A go-shop time is a term in a mergers and acquisitions agreement that allows the target business to seek out a rival bid during that period. Bid that is hostile Bid that is hostile Hostile takeover bids are a form of takeover proposal when the acquiring business makes a tender offer directly to the shareholders in exchange for their shares of stock. Different Types of Due Diligence Different Types of Due Diligence Due Diligence is one of the most significant and time-consuming steps in a merger and acquisition transaction. In the context of buying a house, due diligence is a procedure that a buyer goes through in order to verify the correctness of the seller’s assertions. There are numerous sorts of due diligence that must be completed before a possible M A transaction may proceed.
How Does a Stalking Horse Bid Work?
With all of the scandals and ongoing lawsuits against Harvey Weinstein, it should come as no surprise that the Weinstein Company has filed for Chapter 11 bankruptcy. Despite a deal to sell the company for $500 million to Ron Burkle and partners, the deal fell through after it was discovered that the company had unpaid debt. Many bidders have begun to place their bids on the table in order to receive “stalking horse” bids, as the term implies. Potential investors frequently bid on and purchase listed assets of a debtor who is either about to file for Chapter 11 bankruptcy or is currently in the process of filing.
- What is the procedure for placing a stalking horse bid?
- Originally, the term “stalking horse” was used by hunters to describe when they would hide behind their horses as they crept closer to their prey.
- Companies that are experiencing financial difficulties and are preparing to file for business bankruptcy can achieve a successful restructuring of their financial affairs by selling at least a majority of their company’s assets to a third party.
- With the highest initial bid becoming the auction’s floor price, the company has the opportunity to make more money from higher bids at the auction in the following rounds.
What is the method for placing a stalking horse offer in accordance with the bidding rules and procedures? Any organization wishing to join must be able to provide strong documentation of their financial situations as well as a good faith deposit in order to be considered. Other bidders will be required to adhere to the same rules and regulations prior to the auction. Because of this, the stalking horse bidder may find himself in a position of power over the following: Including:
- The deadline for submitting bids
- Depending on the situation, a stalking horse may require its own form of an asset acquisition agreement. Whether or not a bid is eligible to be considered for participation
- No matter if the bidding procedure is open or closed, The conditions under which a secured creditor may be permitted to credit bid
- Which offers are shared with the stalking horse bidder and which ones are not
Negotiating bidding processes in the advantage of the stalking horse bidder would be beneficial to both parties concerned. The corporation may, for example, set high bidding increments when the auction begins in an attempt to discourage competing bids, or they could gain matching rights in order to cut their own costs in order to remain in the auction.
Benefits for the Stalking Horse Bidder
What is the mechanism through which a stalking horse bid works in the bidder’s favor? There are a variety of incentives available to the successful bidder. For begin, the selected business is picked by the troubled company to lodge the initial offer on their behalf. A second point to mention is that when a bidder decides to submit a proposal, they often have the option to undertake an internal evaluation of the company’s assets. Other bidders may not have enough time to complete their due diligence and evaluate the same assets as the winning bidder.
This puts them in a favorable position to strike a deal with the firm that is going into bankruptcy. This applies to any existing liens, present contracts, and any specific assets possessed by the failing firm, among other things.
The stalking horse bidder’s expenditures, such as financial consultants, legal fees, and other deal-related expenses, are often refunded if the business is outbid by the winning bidder. This is clearly conditional on whether or not the fees surpass the value of the debtor’s inheritance. In order to qualify, the costs must be classified as administrative fees.
Break-up fees are a form of insurance policy that protects stalking horse bidders in the event that they are outbid during the auction. The negotiated fee is often between one and three percent of the final purchase price, and it is intended to assist with the reimbursement of a portion of the losses incurred. The court must give its consent before the break-up fee may be collected.
Cons for the Stalking Horse Bidder
When you are the first to submit a bid, there are a few disadvantages. Despite the fact that the stalking horse bidder aims to obtain the assets at the lowest possible price, the price must remain reasonable. Furthermore, if the bankruptcy court or creditors committee does not accept the negotiated bid between the insolvent firm and the bidder, the negotiated bid between the insolvent company and the bidder is not necessarily guaranteed. There is also the possibility that assets may not be as valuable as the suggested floor price, or that the company’s assets would deteriorate over the auction process, which increases the risk associated with establishing the starting bid.
Finally, remember that success is not always guaranteed.
In the situation that there are no other bids in an auction, how does a stalking horse bid function? If there are no other bids, the assets of the struggling firm will be granted to the company that made the stalking horse offer at the pre-negotiated price, if there are no other bidders. The possibility exists that other potential bidders may notice the proposal and decide to avoid bidding entirely in order to pursue a different opportunity. Even yet, some bidders may choose to forego making the opening bid in order to avoid becoming the stalking horse.
Stalking Horse Offer Bids
Business bankruptcy filings occur more frequently than one might expect and might be advantageous to struggling businesses. This allows the bidder an opportunity to negotiate a tentative purchase deal with the distressed debtor by putting an initial bid as the stalking horse bidder and then increasing the bid. At first glance, the procedure of placing a stalking horse bid may appear complicated. As a potential purchaser or a struggling firm about to file for bankruptcy, we urge that you consult with legal and financial professionals to assist you in navigating the bankruptcy proceedings.
Summary Title of the Article What is the procedure for placing a Stalking Horse Bid?
There are a variety of incentives available to the successful bidder. Author Chad Van Horn is a professional basketball player. Attorneys at Van Horn Law Group, P.C. Attorneys at Van Horn Law Group, P.C. Logo of the publisher
What is a Stalking Horse Bidder? – Definition from Divestopedia
As the name implies, a stalking horse bidder is a business selected by a financially troubled firm to make the initial offer when selling one or more of its assets in an auction-style procedure. This tactic, known as a stalking horse bid, is used to assess the market’s reaction to a new product or service. During this procedure, the corporation compiles a list of potential bids and selects the highest bidder. This stalking horse bidder is provided a variety of incentives, such as breakup fees, to entice him to participate in the auction.
Due to the fact that the price of the highest bidder becomes the beginning price of the auction, the company’s chances of making more money are significantly improved.
Divestopedia Explains Stalking Horse Bidder
In an auction, the stalking horse bidder serves as a sort of safety net for a financially troubled corporation. Because the top bidder is given the opportunity to make the initial bid, the firm has a better chance of receiving larger bids for its assets while avoiding receiving any cheap offers. Even in situations when there are no other higher bidders, the stalking horse bidder is able to obtain the greatest possible price for the troubled firm in question. As a result, this is a successful technique for businesses that need to sell their assets at auction.
The bidder is willing to submit the highest price since the incentives provided by the auction more than offset any potential losses for him or her.
The remainder of the procedure is conducted in the manner of a standard auction, with the assets of the distressed firm being awarded to the highest bidder.
90 Second Lesson: Stalking Horse Bid, Yay or Neigh?
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The bankruptcy Pegasus: stalking horse agreements in aviation
With regular international travel being prohibited for extended periods of time since March 2020 as a result of the Covid-19 epidemic, the aviation sector has suffered a huge setback. Due to this, airlines and other market players have experienced payment defaults and insolvency as they tried to keep their operations running while still meeting their debt and rental commitments. While the market has been in upheaval, some astute investors have taken notice and are looking to take advantage of lower aircraft prices and demand in the secondary market as a way to profit.
This essay will briefly address stalking horse agreements, which are an interesting method via which investors have already attempted to take advantage of the present market climate, as well as other related topics.
Stalking Horse Agreements
While stalking horse agreements are relatively unusual in the context of European restructurings and distressed sales, they are rather widespread in the context of Chapter 11 bankruptcy proceedings in the United States of America. Bankruptcies are frequently filed in order to allow so-called “363 sales,” which are sales of a firm’s assets conducted in line with Section 363 of the Bankruptcy Code, with the hope of recovering money due to creditors by the bankrupt corporation. In the event that a third party offers to acquire all or a portion of the debtor’s assets, the debtor and the bankruptcy court will entertain stalking bid bids from that party.
In light of the distressed nature of 363 sales in the United States, the stalking horse bid will typically represent a lower valuation of the assets than their current market value.
The stalking horse will negotiate with the bankrupt debtor about the terms of its stalking horse offer as well as the boundaries of the auction process, which may result in other bidders beating the stalking horse’s bid in certain situations.
The following are some of the advantages of a 363 sale for the stalking horse bidder/ultimate buyer:
- Stalking horse bidders are frequently heavily involved in the structuring of auction processes, which means that the rules and procedures are often advantageous to the stalking horse bidder who can influence auction time and duration. Stalking horse bidders are often heavily involved in the structuring and timing of auctions, which means that they are often able to influence auction time and duration and can influence auction time and duration and can influence auction time and duration.
Stalking Horse Agreements in the aviation industry
Several aviation businesses have experienced difficult times and have gone through various insolvency or restructuring arrangements since the beginning of 2020, which has resulted in lessors defaulting on debt repayments and airlines defaulting on rent payments and/or rejecting aircraft leases outright since that time. Affected parties’ aviation assets must be remarketed and disposed of in order for creditors to recover some of their initial investment if new loan or lease conditions cannot be agreed upon between the defaulting party and its creditors.
A number of debtors have entered into stalking horse agreements with potential buyers (the stalking horse bidders) in an attempt to pique market interest in purchasing their aircraft assets and to ensure that the aircraft assets will be sold at a pre-agreed minimum price.
Several conditions will be attached to the stalking horse bidder’s submission of its stalking horse bid, including a minimum threshold for any bid that defeats the stalking horse bid and some form of financial compensation in the event that the stalking horse bidder is ultimately unsuccessful in purchasing the aircraft assets.
In both cases, investors are said to have taken advantage of normal EETC provisions in order to gain control over the process of disposing of the aircraft collateral and to launch an auction process in which they served as stalking horse bids for the aircraft collateral.
- Stalking horses for entire aircraft portfolios, with bids typically in the tens of millions of US Dollars, which are typically sufficient to repay at least the majority of principal and interest owed to the senior noteholders and lenders, reimburse the costs incurred by and fees due to the administrative agents, and repay amounts owed to the liquidity facility providers However, stalking horse bids have typically not been sufficient to repay amounts owed to subordinated noteholders/lenders
- Requirements that competing bidders in the eventual auction process meet certain conditions such as: signing a confidentiality agreement
- Providing evidence of their ability to execute the transaction
- And a minimum overbid increment in the case of more than one qualified bidder
- In one particular EETC deal, a stalking horse bid (made by a controlling shareholder) was sufficient to repay amounts owed to subordinated
While this sort of procedure for obtaining troubled business assets is uncommon in UK and European restructurings and distressed aircraft disposals, it is extremely typical in “363 sale” circumstances involving bankrupt companies in the United States.
A number of private equity and other alternative finance providers may be tempted to take advantage of the industry’s collapse in order to purchase assets at a discount. These agreements, known as stalking horse arrangements, have been used effectively by them in other industries in the past.
Consequences for creditors of the insolvent debtor
While this sort of procedure for obtaining troubled business assets is uncommon in UK and European restructurings and distressed aircraft disposals, it is relatively typical in “363 sale” circumstances involving distressed companies in the US. A number of private equity and other alternative finance providers may be motivated to take advantage of the industry’s collapse in order to purchase assets at a discount. These agreements, known as stalking horse arrangements, have been used effectively by them in other industries in the past.