Recent rulings in the Del Monte Foods and Serta Simmons Chapter 11 cases have deepened the question of when a financing that favors one group of secured lenders violates the sharing provisions in a pre-bankruptcy credit agreement. Bloomberg Law’s Deep Dive examines what that uncertainty means for sponsors, lenders, and the professionals advising them.
Partner Stacy Tecklin, who advises hedge funds, broker-dealers, and special situations investors on distressed debt and claims trading, told Bloomberg Law that investors understand that courts weigh fairness when they examine these deals. “Is it offered to everyone? Was there meaningful dialogue? Are people holding out purely as a litigation play? Judges look at all of this.”
The article noted that court rulings tend to inspire new language in credit documents. Protective provisions such as so-called “Serta blockers” have proliferated in credit agreements, but as Stacy put it, “There’s always the flavor of the month until there’s a new one.”
In her view, Chapter 11 loans and pre-bankruptcy roll-ups aren’t going to be curtailed. “It’s just a question as to how you raise that money.”
Read more in the full Bloomberg Law article.