Davis Polk partner Darren Klein was featured in Financier Worldwide discussing the main trends and developments that have dominated the distressed M&A market over the past 12 months.

Darren noted that in U.S. chapter 11 proceedings, there has been a recent trend of prepetition creditors participating in section 363 sales on a defensive basis. “The classic example of a secured creditor credit bidding or setting a reserve level with a credit bid is the easy example, but there are situations where there is a need to construct synthetic credit bids on behalf of unsecured noteholder groups. In a nutshell, the unsecured noteholder group bids an amount of cash that it would otherwise receive as proceeds from the asset sale or under a chapter 11 plan. This only works, of course, if the unsecured noteholders are far enough in the money, but in those circumstances, it is an important tool to maximize value in the sale process,” Darren explained.

When asked how he would characterize the current appetite of distressed investors, Darren said, “Distressed investors continue to express an interest in distressed assets where they believe the return on investment is there.”

Darren also went on to describe the particular challenges the distressed M&A process generally involves, what strategies and methodologies should be employed to value distressed companies and how parties should manage the competing interests of the various groups associated with a distressed transaction.

“Roundtable: Distressed M&A,” Financier Worldwide (December 2023 issue) 

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