Sit Back and RadLAX

I'm having trouble getting excited over RadLAX going before SCOTUS.  Ronald Mann has written that RadLAX "well might be the most important business bankruptcy case since its 1999 decision in Bank of America National Trust & Savings Ass’n v. 203 North LaSalle Street Partnership." I think that statement is literaly true, but that's not saying much; the Supreme Court doesn't hear very many business bankruptcy cases, period.

As it stands, I don't think the outcome in RadLAX is going to have much of an impact on bankruptcy practice on the ground.  If the creditors prevail, the world will look like status quo, say 2009:  credit bidding is allowed in sales under plans (and there will be little reason to teach RadLAX in a bankruptcy course).

If the debtor prevails, then de jure there will be no right to credit bid, but there will be one de facto in most cases (making the case well worth teaching).  If there's a DIP financing agreement, that agreement will almost certainly provide for the DIP lender to have a right to credit bid.  That means a ruling for the debtors will affect a narrow class of creditors and cases.  It will affect secured lenders not in the DIP consortium, and it will affect secured lenders in cases where there is no DIP financing. That's cases financing themselves on cash collateral or unrestricted cash or trade credit or unsecured insider DIP loans.  In other words, no impact whatsoever on the mega-cases.  Maybe a greater impact on middle market. We'll also see syndication agreements including provisions to deal with cash bidding situations.  In other words, a ruling for the debtors in RadLAX is unlikely to result in a major realignment of power in bankruptcy cases.  

Sadly, SCOTUS taking RadLAX (which is reasonable to deal with a circuit split) is a reminder that SCOTUS hasn't addressed the two key issues in Chapter 11:  the use of DIP financing agreements and asset sales as sub rosa plans.  Obviously SCOTUS has to have a proper case to deal with these problems, and SCOTUS generally has discretion on hearing appeals.  The Court could have dealt with this in Chrysler, but because of the macroeconomic impact of Chrysler (via GM), it was not the ideal case for addressing the interaction between the DIP loan, the sale, and the plan. So while it's nice to see a business bankruptcy case before the Court, I don't think too much rides on this one.