Private Credit Restructuring: Strict Foreclosure Spotlight

Chapter 11 is expensive and not always the right tool, particularly for a restructuring of a company with a broken balance sheet, as compared to a business with a broken business model. We have seen a significant uptick in out-of-court activity and clients frequently ask us about foreclosure options. In this post, we highlight a page in the foreclosure playbook — strict foreclosure — and discuss its advantages and challenges.

Strict Foreclosure

Strict foreclosure is a secured creditor's post-default remedy. In its simplest form, strict foreclosure swaps debt forgiveness for collateral ownership. Strict foreclosure is sometimes called "friendly foreclosure," because it typically requires the consent (or, in some instances, non-objection) from the borrower, guarantors and any other creditors with liens on the subject collateral. Strict foreclosure is a state law remedy under Section 9-620 of the Uniform Commercial Code ("UCC") and does not require any judicial