Debt Download

In the News

• The broadly syndicated loan (BSL) market continued to show signs of weakness in the first half of March, with $11.7 billion of new supply net of associated repayments through March 14, about $1 billion short of demand. That allowed lenders to enjoy their most favorable flex score since May 2023: six pricing cuts against three increases, a 2:1 ratio that is well off the 8.8:1 we saw in February. The average all-in single-B clearing spread grew slightly from February to S+338 (S+322/99.5 OID) from S+334 (S+327/99.8 OID). With prices and secondary spreads widening, repricing activity has taken a hit, accounting for $7.1 billion in the first half of March, well down from $40.2 billion in February and $137 billion in January. In fact, Credit Sights says the favorable conditions behind the long-running repricing trend have “crumbled.” Instead, arrangers in the past few days have been forced to “sweeten” terms to lure lenders by hiking pricing and, in at least one case, removing anti-cooperation language that would prevent lenders from certain liability management alliances. Even so, the market has remained dominated by repricing transactions this year, lifting BSL loan volume to $334 billion for the first two months of the year. A “moribund M&A market” (see below) has also proven to be a favorable environment for dividend recapitalizations, with the $8.7 billion total from January and February accounting for the highest volume since 2021—evidencing “a realization from sponsors that the credit markets are in very good shape.”
• Private and public lenders continue to compete intensely, as borrowers with pricey private debt are increasingly refinancing into BSLs. A total of $7.3 billion has been refinanced from private credit into BSLs through the middle of March, resulting in an average savings of 263 bps (with a range of 200 – 375 bps). In an effort to compete, private lenders are tightening spreads to as low as 4.5 percentage points, which is “among the tightest they’ve been for the industry’s best borrowers.” In addition to competing on price, private lenders are offering up favorable documentation: covenant lite has “now come to private credit,” as has portability, which “also speaks to the competition between direct lenders,” according to Goodwin partner Dylan Brown. Private lenders are also proactively offering borrowers lower rates and covenant flexibility, as well as historically short call protection or waiving call protection premiums on existing loans, according to 9fin. Goodwin partner Kris Ring notes that private lenders will otherwise “lose the deal, which could potentially lessen the strength of their relationship with the borrower.” 
• In addition to the increased competition from BSLs, private lenders are now finding themselves defensively “shying away from deals in tariff-sensitive sectors.” Initially, lenders were hopeful that tariffs would be a “one-time shock,” though they are now seen as more of an existential threat to certain businesses and are therefore “very high on the due diligence checklist right now.”
• While the market is “hungry for new paper,” an expected 10% gain in M&A in 2025 has yet to materialize—and this is reportedly the “slowest M&A landscape we’ve seen in a decade,” according to Dylan Brown. M&A stats from the first two months of 2025 evidence this sluggish start: transaction value dropped 21% from a year earlier, to $434.2 billion, with the lowest deal tally in five years. “One of the worst recent starts to dealmaking” is being attributed to the uncertainty resulting from tariffs and the nascent trade wars, in addition to antitrust anxiety sidelining Big Tech from making strategic acquisitions. By region, European M&A is showing “signs of life,” while US, Canada and other regions have seen trade tensions “stalling deals, investments and loan growth.” By industry, manufacturing sectors in the US (such as aluminum and steel, in addition to AI, intellectual property and renewable energy) are expected to see increased activity, as is oil and gas, after suffering a “lackluster” year in 2024. While these industries and sectors may do better than others, credit rating agency Morningstar DBRS expects US tariffs to restrain M&A activity for middle market companies through the rest of the year, according to LCD. Middle market issuers in the manufacturing and consumer products segments are specifically expected to feel an “outsized impact” from tariffs. On the other hand, the beleaguered equity markets may provide some hope as lower valuations could “stimulate M&A.”
• In a further merging of public and private credit markets, State Street Global Advisors and Apollo Global Securities have launched a private credit exchange-traded fund in what has been called a “seismic shift” (or “moon-landing event” if you prefer) that could “facilitate a proliferation of public/private hybrid portfolios in mutual funds and ETFs.” The ETF will have 10% to 35% private credit exposure, with only 15% of investments being deemed illiquid. The illiquidity cap is in line with SEC requirements; however, in a post-launch response with “no precedent,” the SEC raised concerns over how the fund would maintain liquidity. Additionally, to address SEC concerns that the fund name—SPDR SSGA Apollo IG Public & Private Credit ETF—is “misleading” (given that Apollo does not have any obligation to sell debt to the fund and is not a fund adviser or sponsor), “Apollo” is expected to be removed from the fund’s name “as soon as practicable.” Further, Apollo—which is sourcing the assets in the fund—“inked an agreement to shore up liquidity on the private credit side of the fund’s portfolio.” The SEC is reported to have no additional comments. The SEC scrutiny, along with a general selloff in the markets, has led to a lackluster debut, with only $5 million of net inflows from the ETF’s launch at the end of February through the middle of March. But in an otherwise struggling market, “it has outperformed pretty much every single other corner of the global bond market.”

Goodwin Insights – Winning Strategies to Acquire Assets in Bankruptcy

In this month’s Debt Download, Goodwin partners Michael H. Goldstein and Howard S. Steel guide us through the competitive landscape of bankruptcy asset acquisitions, unveiling the intricacies of Bankruptcy Code Section 363 and demonstrating that the strategic use of credit bidding can significantly enhance a buyer's chances of success. By mastering these strategies, potential buyers can navigate the complexities of bankruptcy transactions. Goodwin associates James Lathrop and Alec Weinberg are co-authors of the credit bidding section.

Seven Success Factors for Section 363 Acquisitions

In the high-stakes world of bankruptcy asset acquisitions, Bankruptcy Code Section 363 provides a powerful mechanism for purchasing assets “free and clear” of most claims, liens, and encumbrances. Success in these transactions demands more than deep pockets — it requires a sophisticated understanding of the process, strategic positioning, and flawless execution. To help potential buyers navigate these complex transactions, we identified seven factors that often separate successful purchasers from the pack in Section 363 acquisitions.

1. Establish First-Mover Advantage to Define Deal Terms

First movers can shape the entire transaction structure by establishing the initial framework for what assets are included and what liabilities are excluded. This “stalking horse” position allows buyers to set baseline terms that subsequent bidders must overcome. Critical steps include defining purchased assets with precision, carving out excluded liabilities strategically, and securing customary bid protections that recognize and compensate for the time and resources invested in setting up the initial deal.

2. Build Strategic Alliances Across Stakeholders

Success in Section 363 purchases often hinges on momentum built through careful stakeholder management. Winning bidders cultivate alliances with key constituencies — including lenders, contract counterparties, and creditors’ committees — while securing regulatory approvals and maintaining crucial relationships with employees, vendors, and customers. They also demonstrate their ability to provide essential financing or services during the pre-closing period, establishing themselves as the most credible potential owner of the assets.

3. Structure Price to Satisfy the Fulcrum Security

Successful buyers understand the fulcrum security — the class of claims that sits at the breaking point between being in and out of the money. By structuring bids that satisfy the fulcrum security while maintaining strategic flexibility, buyers can present compelling value propositions that address both economic and practical considerations.

4. Master the Rules to Ensure Flawless Execution

The rules governing Section 363 sales are complex and unforgiving. Winners in this space demonstrate mastery of these rules while maintaining the agility to adapt to changing circumstances. They invest in understanding local bankruptcy court practices, anticipate potential objections, and move decisively when opportunities arise. Success requires both technical expertise and tactical flexibility.

5. Focus Diligence on Critical Risk Factors

Perfect information is impossible in distressed situations. Successful buyers excel at defining acceptable levels of information imperfection, identifying material priorities, and eliminating diligence contingencies that could impede deal execution. They focus on what matters most while maintaining speed and momentum in the process and quickly removing diligence contingencies.

6. Move Faster Than the Competition

Delay does not play in Section 363 sales — speed is often a differentiating factor. Successful purchasers define their first and last bids at the outset, eliminate third-party hurdles such as consent requirements and regulatory approvals early, and maintain the pace needed to outrun competing bidders. They understand that time is not their friend and act accordingly.

7. Secure Financing Before Making Your Move

Nothing derails a Section 363 purchase faster than financing uncertainty. Winners in this space secure all necessary funding at the outset and eliminate financing contingencies that could threaten deal completion.

While mastering the seven success factors for Section 363 acquisitions is crucial, another powerful tool in the arsenal of bankruptcy asset purchasers is credit bidding. This strategy allows secured lenders to leverage their secured debt as consideration for asset purchases, providing a significant advantage in the bidding process. The following section explores the essential steps secured lenders should take to protect their credit bidding rights and maximize their chances of success.

Credit Bidding: Converting Secured Loans to Winning Bids

When a company enters bankruptcy, its assets are often sold to the highest or best bid. Secured lenders — those who have perfected liens on the company's assets — have a unique advantage under Section 363(k) of the Bankruptcy Code: they can bid, subject to review for cause, with their secured debt. This process is known as credit bidding.

While powerful, this right is not absolute. Other creditors, particularly those without security interests or with junior liens, can, and often do, scrutinize and challenge these bids. In such cases, unprepared lenders might face tough choices: settle for less favorable terms or risk losing the ability to credit bid altogether.

This section outlines essential steps secured lenders should take to protect their credit bidding rights. While working closely with legal counsel is crucial, understanding these fundamentals can help such lenders avoid common pitfalls in bankruptcy sales.

1. Ensure Liens Are Valid

A credit bid is only as strong as the underlying security interest. Begin with a thorough review of all loan documents to verify three critical elements:

First, confirm that the collateral description explicitly covers the assets to be purchased. Second, identify any pre-existing liens that might have priority. Third, ensure all security interests are properly "perfected" — meaning all necessary legal steps have been taken to make the liens enforceable.

For example, without proper control in place for the company's bank accounts, there may be no claim to that cash. This potentially can be addressed before bankruptcy by tracking how the cash flows from the collateral. If this problem has to be addressed during the bankruptcy case, it may be too late.

2. Support a Clean Sale Process

Bankruptcy courts demand transparency and fairness in asset sales. This becomes especially critical when a lender plans to credit bid but also has other roles in the company — for instance, serving on the board or acting as a financial sponsor. In these cases, the lender must step back from any decisions about how the sale is conducted to avoid accusations of self-dealing.

3. Identify Potential Red Flags in the Lending Relationship

Bankruptcy courts can limit or deny credit bidding rights if they spot problematic behavior or questionable loan structures. Two major risk areas demand attention:

First, avoid any actions that could suggest bad faith. For example, courts have blocked credit bids when lenders tried to rush the sale process in ways that discouraged other potential buyers. Patience and fairness are essential. Second, ensure the documents reflect a lending relationship and function like a loan. Bankruptcy courts have the power to reclassify supposed "loans" as equity investments if the economic reality suggests that is what they really are. Factors that can raise red flags include:

• The names given to the instruments evidencing the indebtedness
• The presence or absence of a fixed maturity date and schedule of payments
• The presence or absence of a fixed rate of interest and interest payments
• The source of repayments/whether repayment depends on success

4. Be Ready for the Challenge Period

Creditors' committees have a limited window to challenge credit bid rights. The key to minimizing these challenges is preparation. Loan documentation should be assembled and made available to prove the validity and priority of liens, especially regarding:

• the scope of the security interest, including in the company's cash, and 
• the priority of liens versus other creditors.

Unsecured creditors frequently challenge credit bids to gain leverage and extract value. The best defense is thorough preparation: lenders who understand their security rights and have their documentation in order can confidently defend their position and maximize their recovery.

In Case You Missed It – Check out these other recent Goodwin publications: Private Funds Are Getting More Freedom to Recycle; 2024 Year in Review: Major US Supreme Court and Appellate Cases; 2024 Year in Review: Fintech; 2024 Year in Review — Overview: 2024 Lessons and 2025 Emerging Trends; Commercial real estate market expected to strengthen with increased transaction activity in 2025; Six Considerations for Directors Navigating Distressed M&A; How to Navigate Deal Delays and Completion Uncertainty in an Era of Heighted Deal Complexity and Prolonged Interim Period

For inquiries regarding Goodwin’s Debt Download or our Debt Finance practice, please contact Dylan S. Brown and Reid Bagwell.

Was this newsletter forwarded to you? You can receive it directly by subscribing here.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.