A stalking horse agreement is a legal document that outlines the terms of a bidding process in which a third-party bidder, known as the stalking horse, is selected by the debtor to make the first offer for the assets being sold in bankruptcy proceedings. The purpose of this agreement is to establish a minimum bid for the assets, prevent low-ball offers, and create a more competitive bidding environment.
The stalking horse agreement is typically used in situations where the debtor is seeking to sell its assets quickly and efficiently, such as in bankruptcy proceedings. Under the agreement, the stalking horse is selected by the debtor through a competitive bidding process, and is required to make a good faith deposit with the debtor to show its commitment to the bidding process.
Once the stalking horse has made its initial offer, other potential bidders are invited to submit their own bids on the assets. These bidders must meet certain minimum requirements, such as having sufficient financial resources to complete the transaction, and are given a deadline to submit their offers.
If a higher bid is submitted, the stalking horse can either raise its offer or walk away from the deal. If no other bids are received, the stalking horse’s initial offer becomes the opening bid for the auction of the assets, and the stalking horse becomes the lead bidder in the process.
The stalking horse agreement is beneficial for both the debtor and potential bidders. The debtor is able to establish a floor price for the assets, which helps to ensure that the assets are sold at a fair market value. Additionally, the agreement helps to create a more competitive bidding environment, which can result in higher bids for the assets.
For potential bidders, the stalking horse agreement provides a level of assurance that the bidding process is fair and transparent. Bidders are able to see the terms of the stalking horse’s offer, and are provided with a clear set of guidelines for submitting their own bids.
In conclusion, the stalking horse agreement is an important tool in the bankruptcy process for both debtors and potential bidders. By establishing a minimum bid and creating a more competitive bidding environment, the agreement helps to ensure that the assets are sold at a fair market value, while also providing bidders with a level of comfort that the bidding process is fair and transparent.