The opinion of the court was delivered by: Denise Cote, District Judge
This bankruptcy appeal arises out of the financial collapse of the Metaldyne Corporation ("Metaldyne"), a metal components manufacturer and parts supplier for the global light vehicle market. MD Investors Corporation ("MDI"), an investment vehicle formed by two hedge funds that were also prepetition term lenders, purchased substantially all of Metaldyne's assets in an auction. Another prepetition term lender, BDC Finance L.L.C. ("Black Diamond"), appeals from the order approving the sale of Metaldyne's assets to MDI "free and clear of all liens, claims, encumbrances, and other interests of any kind or nature" ("Sale Order"), entered on August 12, 2009 by United States Bankruptcy Judge for the Southern District of New York Martin Glenn. For the following reasons, the Sale Order is affirmed.
The debtors in this action are Metaldyne and Metaldyne Intermediate Holdco, Inc. (collectively "Debtors"). Black Diamond held approximately $3.5 million of the $425 million in outstanding secured debt issued by Debtors.
Black Diamond grounds its challenge to the Sale Order in two principal arguments. It contends that the bankruptcy court erred in concluding that: (1) Black Diamond had consented to the sale through the prepetition loan documents; and (2) § 363 of the Bankruptcy Code permitted the court to force a secured lender to accept an equity interest in exchange for liens in unsold collateral. On this basis, it seeks to revise a crucial term of the sale. The chronology of Metaldyne's bankruptcy and relevant proceedings are summarized here.
Metaldyne filed for bankruptcy on May 27, 2009. At the time, its lenders (the "Term Lenders") held approximately $425 million in secured claims (the "Prepetition Debt").
Metaldyne was one of the fifty largest auto parts suppliers in North America, consisting principally of two business units, the powertrain segment ("Powertrain Assets") and the chassis segment ("Chassis Assets"). Pursuant to the conditions of its post-petition lending facility (the "DIP Financing"), Metaldyne was required to pursue a sale of its assets within 60 days. The bankruptcy court approved bidding procedures authorizing Debtors to solicit purchasers for the Powertrain and Chassis Assets. Assuming there were multiple potential purchasers, the bankruptcy court authorized Debtors to hold an auction for each class of asset. Metaldyne formed a special committee (the "Special Committee") comprised of two independent directors to help it evaluate the bids.
Three "Qualified Bidders" emerged for the Powertrain Assets: (1) Hephaestus Holdings, Inc. ("HHI"); (2) ACOF Operating Manager III, LLC ("Ares"); and (3) MDI.*fn1 HHI and Ares bid solely for the Powertrain Assets whereas MDI bid for both the Powertrain and Chassis Assets, as well as two other components of the Debtors' business. Only one Qualified Bidder emerged for the Chassis Assets.
Debtors held the auction over the course of two days early in August 2009. After several rounds of bidding, the Special Committee determined that the MDI bid was the highest and best offer.
2. The Purchase Agreement
Debtors and MDI entered into a purchase agreement (the "Purchase Agreement") under which MDI purchased substantially all of Metaldyne's assets in consideration for a "credit bid" of the full amount of the Term Lender's claims, $39.5 million for the non-credit bid assets, $8.5 million in administrative claims, assumption of a 15 million Euro note, release of all liens on assets not included in the sale, and $2.5 million to facilitate the liquidation of the Debtors' remaining assets and to pursue certain claims and causes of action for the benefit of creditors. In re Metaldyne, 409 B.R. 671, 674 (Bankr. S.D.N.Y. 2009).
The rights of the Term Lenders were governed by both a credit agreement (the "Credit Agreement") and a security agreement ("the Security Agreement," and with the Credit Agreement, collectively, the "Loan Documents").*fn2 By the terms of these documents, each Term Lender "irrevocably appointed" JPMorgan Chase Bank, N.A. (the "Agent") as both its Administrative Agent and its Collateral Agent. As such, the Agent possessed the authority to act on behalf of, and exercise the rights of, each Term Lender upon an event of default. The commencement of proceedings under chapter 11 of the Bankruptcy Code qualified as one such event. Pursuant to these terms, the Agent credit bid the full amount of the Prepetition Debt, notwithstanding the ...