When a borrower becomes distressed, lenders often face a difficult choice: continue funding a troubled business, pursue a formal restructuring, or take control of the collateral and begin a liquidation process. In many situations, however, there is another path worth considering: an opportunistic buyer.
This issue is becoming more pressing. Commercial Chapter 11 filings edged up to 7,940 in 2025 from 7,893 in 2024, while total commercial bankruptcy filings rose 5%. In private credit, Fitch Ratings reported a record 9.2% default rate for 2025 among the 302 mostly middle-market companies in its privately monitored portfolio, with smaller borrowers (those with $25 million or less in earnings) making up most of those defaults. The pressure has carried into 2026. Fitch’s broader private credit default rate, which tracks about 1,300 borrowers, reached a record 6.3% for the 12 months through August 2026. (Source: Epiq; PwC; Reuters; Investment Executive) In that environment, a liquidation mindset is not enough. Lenders need an exit strategy.
Strategic acquirers, private equity firms, family offices and other opportunistic investors can provide an alternative exit that may preserve more value than a traditional liquidation. For lenders, engaging these buyers early can create a competitive process for the business or its assets while providing greater certainty around repayment and recovery.
The right approach depends on the lender’s collateral position, the borrower’s capital structure, the condition of the business and the buyer universe. Several transaction structures can be considered.
Why the Buyer Matters
Not every buyer sees the same value. A liquidation buyer prices assets as parts: inventory, equipment, receivables, real estate and intellectual property, each for what it would fetch on its own. An opportunistic operating buyer may price those same assets as a platform for growth, a way to fill unused capacity, or a chance to win customers for less than it would cost to build them.
For a lender, that difference is everything. If collateral is sold piece by piece, recovery may be limited to forced-sale value. If the same assets go to a buyer that can keep the business running, the lender can capture far more and avoid the losses that follow a shutdown, including employee departures, customer loss and vendor disruption. In distress, who buys the business can matter as much as what it is worth.
Buyer Acquires the Borrower’s Assets and Repays the Lender
One of the most straightforward alternatives is a consensual sale in which an opportunistic buyer purchases some or all of the borrower’s assets. The proceeds are then used to repay the lender or support a negotiated discounted payoff, subject to the applicable intercreditor, lien and bankruptcy considerations. If the buyer refinances the secured debt at closing, the lender exits directly. If proceeds are insufficient, the lender may agree to release liens in exchange for the best achievable recovery.
This approach can be particularly attractive when the underlying assets have meaningful going-concern value but the existing capital structure is unsustainable. A buyer may be willing to pay more than the lender could recover through a piecemeal liquidation because the buyer can operate the assets more efficiently, eliminate duplicative costs or generate synergies.
It works best when a few things line up: the borrower is cooperative, the buyer is credible, the lender’s collateral position is clear, and enough time remains to run a targeted process. Buyers will also want comfort that liens are released, liabilities are left behind where appropriate, and the seller will not file bankruptcy shortly after closing in a way that invites fraudulent transfer or preference claims.
Pros:
- Can maximize value by selling the assets as a going concern.
- Provides a relatively clean exit for the lender.
- May preserve jobs, customer relationships and vendor continuity.
- Avoids some of the costs, delays, and visibility of a prolonged workout, liquidation, or formal insolvency proceeding.
Cons:
- Requires cooperation from the borrower and other stakeholders in many circumstances.
- A transaction can take time and may require significant diligence.
- The lender may need to provide concessions or funding to keep the business operating through closing.
- Buyer interest may be limited if the business has deteriorated significantly.
- The lender needs evidence that the process was credible, especially if junior creditors or guarantors may later challenge the outcome.
Lender Sells the Loan to an Opportunistic Buyer
Another option is for the lender to sell its loan or credit position to an opportunistic investor at a discount to face value. The buyer then steps into the lender’s position and determines how to monetize the collateral.
The buyer may negotiate a consensual transaction with the borrower, credit bid, foreclose on the assets through an Article 9 sale, restructure the business or pursue another recovery strategy. For the buyer, the appeal is control. That is the logic behind most loan-to-own strategies: buy the debt at a discount, shape the process, and ultimately take the business or its assets. (Source: Alston & Bird; Crowell & Moring)
For the lender, the appeal is certainty. A loan sale turns an uncertain recovery into immediate cash without having to manage the operational and execution risks of owning or liquidating distressed assets. The question for the lender is simple: is certainty today worth more than a larger but uncertain recovery later?
Pros:
- Creates a relatively quick and definitive exit.
- Transfers workout, enforcement and asset-realization risk to the buyer.
- Greatly reduces the lender’s ongoing exposure to a troubled credit, though some obligations under the sale agreement, such as representations or indemnities, may remain.
- Can be attractive when the lender lacks the resources or mandate to pursue a more complex restructuring.
Cons:
- The lender may have to accept a discount to the outstanding loan balance.
- The buyer is likely to price enforcement, timing and execution risks.
- A sale of the loan may produce a lower immediate recovery than a successfully executed asset sale.
- The transaction requires careful review of loan documents, liens, assignments, and applicable law.
Market the Assets to Opportunistic Buyers Before Liquidation
Perhaps the most overlooked strategy is to approach potential buyers before commencing a formal liquidation process. Rather than waiting until assets have been repossessed and marketed individually, the lender and its advisors can test the market while the business remains operational.
The biggest mistake is often waiting until liquidation is the only option left. Once employees leave, customers move, vendors stop shipping, licenses lapse or inventory becomes obsolete, what remains to be sold is no longer a business but its assets.
Testing the market early can uncover buyers who value the assets differently from a liquidation provider. Strategic buyers, portfolio companies, competitors, suppliers, customers and special situations funds may all view the same assets differently. A strategic buyer with a lower cost of capital, an existing customer base or operational synergies may be willing to pay substantially more than the liquidation value of the same assets. For example, equipment, inventory, intellectual property, customer contracts and other assets may have limited value individually but considerable value when combined within an operating platform.
Pros:
- Provides an opportunity to capture going concern or strategic value.
- Can generate competitive tension among multiple buyers.
- May produce a higher recovery than traditional liquidation.
- Gives the lender greater visibility into market value before taking more aggressive enforcement steps.
Cons:
- Requires careful coordination with the borrower and potentially other creditors.
- Confidentiality and customer/vendor concerns can complicate a sale process.
- Buyers may demand representations, transition support, or other protections.
- If the process does not produce an acceptable offer, the lender may still need to pursue foreclosure or liquidation.
Article 9 Sale: Fast, but Process Matters
If the borrower defaults and the lender holds a perfected security interest, the lender may be able to sell collateral through an Article 9 process under the Uniform Commercial Code. Section 9-610 permits a secured party, after default, to dispose of collateral through public or private proceedings, provided every aspect of the disposition is commercially reasonable. (Source: Cornell LII, UCC § 9-610)
An Article 9 sale can be useful where speed matters and the collateral can be transferred outside bankruptcy. Because no court order approves the sale in advance, the lender needs a well-documented record: notice to the borrower and other parties with an interest in the collateral, as Section 9-611 requires, a fair marketing effort where appropriate, a reasonable sale method and a price it can defend. (Source: Weil Restructuring)
Pros:
- Can move faster than a Chapter 11 sale.
- Can preserve certain assets before they deteriorate.
- Avoids some of the cost of a court process.
Cons:
- Every aspect of the sale must be commercially reasonable, and the lender must be able to show it.
- No court order approves the sale in advance, so a poorly documented sale can invite disputes later.
- Requires a default by the borrower, and the lender’s priority over other creditors depends on having a properly perfected security interest.
Chapter 11 or Section 363 Sale
When the business needs a more formal transfer, a Chapter 11 sale may produce a cleaner outcome. Section 363 of the Bankruptcy Code is commonly used to sell assets outside the ordinary course of business, and courts can approve sales free and clear of certain liens, claims and interests when the statutory conditions are met. (Source: Cornell LII, 11 U.S.C. § 363; Akin Gump)
The Acorda Therapeutics case is a good example. After Acorda filed for Chapter 11 in 2024, Merz Therapeutics participated in a court-supervised Section 363 sale, conducted diligence and acquired substantially all of the company’s assets for $185 million. The buyer saw value beyond the company’s financial distress, including established commercial neurology products and a platform to strengthen its Parkinson’s disease and multiple sclerosis franchise. (Source: Business Wire; Merz Therapeutics) The court process did not create that value. It gave a strategic buyer a clean, orderly way to capture it.
Pros:
- Court approval can let the buyer take assets free and clear of certain liens, claims and interests, which reduces successor-liability and lien risk.
- A court-supervised auction may create a clearer valuation record for the lender.
- Gives a strategic buyer a clean, orderly way to acquire the business.
Cons:
- Higher cost and longer timelines than an out-of-court sale.
- The process is public.
- Requires debtor cooperation or formal bankruptcy filing.
Choosing the Right Exit Strategy
The best strategy is rarely determined by the loan balance alone. Lenders should start with a practical recovery analysis:
- What is the collateral worth in liquidation?
- What is the business worth as a going concern?
- What does it cost to keep funding the business?
- How strong is the collateral package, and how cooperative is the borrower?
- Who are the natural buyers, and how deep is that buyer universe?
- How much time is left before value decays?
- What process is defensible?
- What risks is the lender willing to keep, and what risks should be sold to an opportunistic buyer?
Importantly, these strategies are not always mutually exclusive. A lender can prepare for enforcement while testing the market with strategic and opportunistic buyers. Establishing a credible alternative, such as a potential Article 9 sale or liquidation, can also strengthen the lender’s negotiating position with a borrower and prospective buyers.
The best buyer is not always the highest bidder on paper. In many cases, it is the buyer most likely to close on time, fund working capital, retain customers and preserve the assets supporting repayment. In distress, certainty has value.
The Bottom Line
For lenders facing a distressed credit, the key question is not simply, “How do we recover the collateral?” It is, “Who values the collateral the most, and how can we transfer that value efficiently?”
An opportunistic buyer may be willing to pay a premium precisely because it sees value that a lender, liquidation firm or distressed borrower cannot monetize as effectively. By identifying those buyers early and evaluating multiple transaction structures, lenders can potentially improve recoveries, shorten the workout timeline and reduce execution risk.
For owners, management teams and sponsors, engaging an opportunistic buyer can likewise create a path to preserve enterprise value and avoid the potentially destructive consequences of an uncontrolled liquidation.
In distressed situations, timing matters. As time passes, customers lose confidence, vendors change terms, employees look elsewhere and buyers reduce price as uncertainty grows. The earlier a lender evaluates an opportunistic sale, the more options it may have, and the greater the likelihood that the business or its assets can be sold based on their strategic value rather than simply their liquidation value. The goal is not simply to exit. It is to exit before value disappears.
