The process of a hunted horse offering may seem confusing at first. Our recommendation is to work with legal and financial specialists to help you navigate the process as a potential buyer or struggling business preparing for bankruptcy. It is important to work with professionals to negotiate and close the transaction as quickly and efficiently as possible. The term “tracking horse” comes from the term of an old hunter when hunters hid behind their horses as they approached their prey. This vaguely implies that the buyer`s potential transaction is hidden from the courts, creditors and the public, although this is not always the case. A stalk horse offer, agreement or offer is an offer for a bankrupt company or its assets that is organized as an effective reserve offer prior to an auction. [1] [2] The intention is to maximize the value of its assets or avoid low bids in (or before) a judicial auction. [3] Corporate bankruptcy filings are more common than you might think and can be beneficial for struggling businesses. By submitting an initial offer as a stalk horse bidder, this gives the bidder the opportunity to negotiate a preliminary purchase agreement with the debtor in difficulty.

Before selling the assets through an auction, the debtor must first obtain the consent of the bankruptcy court to initiate the sale. Once the bankruptcy court has approved the auction, the debtor enters into a binding agreement with the first interested buyer, which sets the minimum price for the other bidders. The first bidder gets the opportunity, Due DiligenceDue Diligence is a process of reviewing, investigating or reviewing a potential business or investment opportunity to confirm all relevant facts and financial information and review everything that has been discussed during a M&A transaction or investment process. Due diligence is done prior to the conclusion of a transaction. on the debtor and its assets to determine whether it is a viable business and the best price for the assets. Because these agreements are designed to maximize the value of a debtor`s assets, many jurisdictions allow the use of hunting horse agreements. However, these transactions may be contentious and may or may not be permitted in some cases. The 4. In August 2008, Steve and Barry`s LLC, a casual clothing retailer, filed an agreement to track horses down with the U.S. bankruptcy court for the Southern District of New York. Their partner in this asset purchase agreement was BH S&B Holding LLC, a subsidiary of Bay Harbor Management. [6] The sale of assets under Article 363 of the Bankruptcy Code or as part of a reorganisation plan offers a number of advantages to a purchaser, but also constitutes a number of potential obstacles, in particular for buyers who are not familiar with the bankruptcy sale procedure.

Benefits include (i) obtaining the free and unprivileged assets, (ii) protection against fraudulent transfer requests, (iii) protection against certain liabilities and certainty as to the applicability of the transaction documents as provided for in the bankruptcy court order, (iv) exemption from the need to obtain consent to assign certain contracts, (v) an expedited waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, (vi) an exemption from certain state laws, including wholesale sales and shareholder approval, and (vii) in the case of sales under a confirmed reorganization plan, an exemption from land transfer tax. Many bidders have started to put their bids on the table to get “stalk horse” bids. Potential investors often offer and buy the listed assets of a debtor before or currently bankrupt under Chapter 11. What is a stalk horse offer? How does a tracker horse auction work? This article covers that and much more. Sometimes it`s a good thing to be the first on stage. At other times, it is best to follow the first responders. When purchasing the assets of a distressed enterprise in accordance with section 363 of the Insolvency Code, both approaches have advantages and disadvantages. The tracker horse will also play a central role – alongside the debtor, the debtor`s secured creditors and the debtor`s unsecured creditors committee – in the preparation of the sale proceedings proposed to the bankruptcy court. Tendering process. Perhaps the most important leverage a tracker horse can have is its ability to negotiate favorable auction processes.

In some cases, the debtor will attempt to eliminate this leverage by agreeing to tender procedures with the creditor committee, secured lenders and other relevant parties before choosing a tracker horse. Pre-approved tendering procedures help discourage a tracker from changing procedures, as any attempted amendment is likely to be seen as an attempt to chill the bidding process and discourage other bidders from participating in the auction process, even though the requested changes would normally be considered appropriate if submitted as part of the negotiated tendering processes. However, some judges are reluctant to approve tendering procedures before a stalk horse is found. One of the issues that may be discussed between the stalking horse and the debtor is the circumstances in which the stalking horse is entitled to reimbursement and the date on which payment is actually due. A typical formulation is that the tracker horse is entitled to a payment if the debtor accepts a “higher and better offer” for the assets. What constitutes a “higher and better offer” is likely to be subject to negotiation, especially if the purchase price includes elements other than cash. The tracker horse will want to be paid once the highest and best offer has been accepted, while the debtor usually insists that payment is not due until the transaction with the new buyer is actually completed to ensure that the proceeds of the sale and not of exploitation or other means are available to make the payment. According to the bids received at the auction, the tracking horse is considered the winner if the bids received are lower than the bid of the hunting horse or if no bid has been received. However, if there are higher bids at auction, the debtor can choose the bid that offers the highest price for the assets. In such a scenario, the debtor may offer the track horse bidder negotiated break-up fees to compensate for losses incurred in the auction process, typically 1% to 3% of the final purchase price.

A debtor may sell all or part of his property under section 363 of the Bankruptcy Act […].