## Facts

- Two affiliated debtors operated a family-owned newspaper, radio, and communications business, including four radio stations and related tower real estate (the “Tower Assets”).
- The debtors had borrowed about $50.8 million under a loan secured by specified real and personal property; three tower parcels were not included in the pledged collateral.
- After financial deterioration and loan defaults, the lender sold the loan to an investment firm, which transferred the loan (in whole or part) to its affiliate (the secured creditor).
- The secured creditor pursued a “loan-to-own” acquisition strategy, pushing for a bankruptcy filing and a sale of substantially all assets to it.
- Upon learning it lacked a lien on the Tower Assets, the secured creditor pressed the debtors to grant a lien on those assets as a condition for debtor-in-possession financing.
- The secured creditor recorded UCC financing statements covering the Tower Assets without informing the debtors and later sought additional lien relief in court without disclosing those filings.
- The debtors filed Chapter 11 petitions and moved to sell substantially all business assets, including the Tower Assets, through court-approved bidding procedures.
- The bidding procedures allowed the secured creditor to credit bid only as to assets on which it held valid liens, as agreed by the parties or determined by the court at a scheduled hearing.
- The debtors and the unsecured creditors’ committee disputed the scope of the creditor’s liens and argued the asserted full credit bid would deter competing bids.

## Issues

1. Whether the secured creditor held valid, perfected liens on substantially all assets, including the Tower Assets.
2. Whether the court should limit the secured creditor’s right to credit bid under 11 U.S.C. § 363(k) “for cause,” and if so, to what extent.

## Decision

- The court determined the secured creditor did not hold a valid, perfected lien on the Tower Assets (and certain other property it claimed).
- The court held that § 363(k) credit bidding is subject to limitation “for cause” and found cause on this record.
- The court significantly curtailed the secured creditor’s permitted credit bid to an amount tied to collateral in which it held valid, perfected liens and structured to preserve a competitive auction.
- The ruling was interlocutory and set credit-bid parameters for the forthcoming § 363 sale process.

## Legal Principles

- A secured creditor’s right to credit bid under 11 U.S.C. § 363(k) is not absolute; the court may limit credit bidding “for cause.”
- “Cause” may exist where a creditor’s conduct threatens the integrity of the sale process, including conduct that risks chilling bidding or manipulating the auction toward creditor ownership rather than debt repayment.
- Credit-bid rights are limited to the extent of the creditor’s allowed secured claim in collateral subject to valid, perfected liens; collateral scope is determined by the loan documents and applicable perfection requirements.
- Unilateral perfection attempts and lack of candor concerning lien-related filings may support limiting credit bidding to protect a fair sale process and market testing of value.

## Conclusion

The court held the creditor lacked a valid lien on the Tower Assets and, to prevent a chilled auction and address sale-process interference, limited the creditor’s § 363(k) credit bid to an amount supported by properly perfected collateral, thereby preserving competitive bidding in the planned sale.


In re Free Lance-Star Publ'g Co. of Fredericksburg, 512 B.R. 798 (Bankr. E.D. Va. 2014)