How does a stalking horse bid work?

What is a stalking horse in real estate?

As stalking horses lead the auction process by throwing in a substantial starting bid for the company or individual’s property, other bidders are meant to see this as a sign that the assets are worth bidding on.

How would a stalking horse bidder benefit from bidding procedures?

It would be to the benefit of the stalking horse bidder to negotiate bidding procedures in their favor. For example, the company could establish steep bidding increments when the auction begins in an effort to deter opposing bids or they could obtain matching rights to reduce its own expense to remain in the auction.

What is a stalking horse bid in Chapter 11?

Setting out to receive “stalking horse” bids, many bidders have begun to place their bids on the table. Potential investors often bid on and buy listed assets of a debtor before or currently in Chapter 11 bankruptcy. What is a stalking horse bid? How does a stalking horse bid work? This post covers that and much more.

What is a stalking horse bidder?

The stalking horse bidder typically enters into a sale contract with the debtor for the subject assets, thereby setting a floor, or minimum bid. A stalking horse is a buyer who has agreed to make a minimum bid before a bankruptcy auction.

What is a stalking horse in a bankruptcy auction?

stalking horse in Finance. A stalking horse is a buyer who has agreed to make a minimum bid before a bankruptcy auction. The sale process will now be conducted without a stalking horse bid. The stalking horse bidder typically enters into a sale contract with the debtor for the subject assets, thereby setting a floor, or minimum bid.

What is the difference between pawn and stalking horse?

This image is also in common usage as an metaphor. The difference with the stalking horse is that not only is the outcome not known at the outset but, furthermore, that it cannot reasonably be estimated without a proper reconnaissance. Therefore, unlike the pawn, the horse might have a good chance of survival.

How can stalking horses be protected from bid bidding?

In order to protect stalking horses from actually having to bid on, and therefore buy-out, a debtor’s assets, the following protections are in place: Repayment for any legal processes involved in the act of bidding

What are the risks of a stalking horse bid?

Also, by setting the initial bid, there is the risk of the assets not being as valuable as the indicated floor price or the company’s assets deteriorating throughout the auction process. Without additional bidders, the stalking horse bidder may believe they overbid. Finally, success is not always promised.

Can you bid on assets in Chapter 11?

Potential investors often bid on and buy listed assets of a debtor before or currently in Chapter 11 bankruptcy. What is a stalking horse bid? How does a stalking horse bid work?

What is a stalking horse bid in a bankruptcy auction?

The incentives can help the company get a better initial offer before the auction occurs. A stalking-horse bid is the first bid that is offered to a bankrupt company before a public auction takes place. A stalking bid acts as the reserve bid so that the competing bidders cannot underbid the initial bid.

What is a stalking horse in a business?

The stalking horse gets a chance to review the company’s financial records, talk to the management and employees, and apply for any regulatory approval where required. Such an opportunity also allows them to engage creditors, vendors, and large customers to ensure they approve the offer. 3.

Can I Sell my assets through a bankruptcy auction?

Before selling the assets through an auction, the debtor must first get consent from the bankruptcy court to initiate the sale. Once the bankruptcy court approves the auction, the debtor enters into a binding stalking-horse agreement with the first interested buyer who sets the floor price for other bidders.

What are the benefits of stalking-horse bidding?

The stalking-horse bidder benefits from bidding protection for costs incurred as the first bidder. It can receive a breakup fee and expense reimbursements for costs incurred to hire legal and financial advisors, conduct due diligence, and other expenses incurred before the auction becomes public.

What is a stalking horse in psychology?

Stalking horse. A stalking horse is a figure that tests a concept with someone or mounts a challenge against someone on behalf of an anonymous third party. If the idea proves viable or popular, the anonymous figure can then declare its interest and advance the concept with little risk of failure.

Is a stalking horse a smoke screen?

Like a stalking horse, smoke screens are used to screen and mask an attack. In the literal and genuine form, the smoke screen is still a device used in warfare (in defence as well as attack), but the term is also commonly used as a metaphor. A stalking horse would be a particular form of smoke screen.

What is a stalking horse in bankruptcy?

The stalking horse bidder typically enters into a sale contract with the debtor for the subject assets, thereby setting a floor, or minimum bid. A stalking horse is a buyer who has agreed to make a minimum bid before a bankruptcy auction. COBUILD Key Words for Finance. Copyright © HarperCollins Publishers Which type of horse am I?

What is a break-up fee for a stalking horse?

Break-up fees are a type of protection given to stalking horse bidders should they be outbid during the auction. The negotiated fee often ranges from one to three percent of the final purchase price to aid in the compensation of a portion of the losses. The break-up fee is subject to court approval.

What happens to stalking horse bidders when a company goes bankrupt?

This extends to outstanding liens, current contracts, and other specific assets owned by the struggling company. Expenses incurred by the stalking horse bidder for financial advisers, legal fees, and other deal-related expenses are typically reimbursed if the company is outbid. This is obviously contingent on if the fees exceed the debtor’s estate.

How does a bankruptcy bid process work?

Usually, when a company is preparing to file bankruptcy, it chooses an entity from a pool of interested bidders to make the first bid to buy the company’s assets. The selected bidder sets the pace for other bidders, such that other bidders cannot bid below the purchase price.

What is a stalking-horse bid in bankruptcy?

What is a Stalking-Horse Bid? In bankruptcy cases, a stalking-horse bid refers to a deal with a potential buyer that is hidden from the public, creditors, and the courts. Usually, when a company is preparing to file bankruptcy, it chooses an entity from a pool of interested bidders to make the first bid to buy the company’s assets.

Why do they call it a stalking horse?

The term “stalking horse” is borrowed from hunters, and it was used to describe a scenario when hunters would hide behind their horses as they moved closer to the prey. A bankrupt company can achieve an effective restructuring of its financial assets by selling a majority of its assets.