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Serta: 5th Circuit鈥檚 Uptiering Decision Explained
Mark Lightner, Esq. - Head of Special Situations Legal Research, 糖心视频
EXECUTIVE SUMMARY
- On December 31, 2024, the U.S. Court of Appeals for the Fifth Circuit (the 鈥淔ifth Circuit鈥�) issued its much-anticipated decision in the consolidated appeals stemming from the Chapter 11 cases of Serta Simmons Bedding (SSB).
- In broad strokes, the Fifth Circuit held that SSB鈥檚 2020 uptier agreement with certain first- and second-lien holders did not qualify as an 鈥渙pen market purchase,鈥� which is one of the exceptions to the ratable sharing provision in the relevant 2016 first-lien term loan agreement.
- The case will therefore be remanded back to the U.S. Bankruptcy Court for the Southern District of Texas, as the Fifth Circuit noted that the lenders excluded from the 2020 uptiering transaction have a strong case that SSB and the consenting lenders breached the 2016 loan agreement.
- The Fifth Circuit also 鈥渆xcised鈥� certain bargained-for provisions in SSB鈥檚 chapter 11 reorganization plan that granted indemnities to consenting lenders that were involved in the 2020 uptier transaction.
- We are still digesting the Fifth Circuit鈥檚 decision and what it means for LMEs and bankruptcy practice more generally, but we note that the Fifth Circuit鈥檚 conclusion that the 2020 uptier transaction was not an 鈥渙pen market purchase鈥� should not come as a huge surprise.
- Finally, we observe that the loan market will likely view this decision positively, but we also note that what may prove to be most interesting about the decision is the court鈥檚 perspective on the doctrine of equitable mootness and the appellate remedy of excision.
Introduction
On December 31, 2024, the U.S. Court of Appeals for the Fifth Circuit (the 鈥淔ifth Circuit鈥�) issued its much-anticipated decision in the consolidated appeals stemming from the Chapter 11 cases of Serta Simmons Bedding and its affiliated debtors (collectively, 鈥淪SB鈥�). In broad strokes, the Fifth Circuit held that SSB鈥檚 2020 uptier agreement with certain first- and second-lien holders did not qualify as an 鈥渙pen market purchase,鈥� which is one of the exceptions to the ratable sharing provision in the relevant 2016 first-lien term loan agreement. The case will be remanded back to the U.S. Bankruptcy Court for the Southern District of Texas (the 鈥淏ankruptcy Court鈥�) to address breach of contract claims against SSB and the consenting lenders involved in the 2020-uptier transaction. Finally, the Fifth Circuit also 鈥渆xcised鈥� certain bargained-for provisions in SSB鈥檚 reorganization plan that granted indemnities to consenting lenders involved in the 2020-uptier transaction.
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