A federal appeals court in New Orleans has ruled against a 2020 loan arrangement made by Serta Simmons Bedding (SSB), stating that it failed to provide equal treatment to lenders. The decision, handed down by a three-judge panel of the 5th U.S. Circuit Court of Appeals, may have wider implications for how corporate financing agreements are structured.
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The court stopped short of overturning the restructuring plan approved in 2023 as part of Serta Simmons' Chapter 11 bankruptcy proceedings. However, it removed indemnity provisions that had protected certain lenders from legal claims regarding the disputed debt deal. This 2020 arrangement secured $200 million in cash for SSB but relegated some lenders, including Apollo Global Management and Angelo Gordon & Co., to lower repayment priorities.
The court acknowledged the controversial nature of the deal, noting that such "uptier" transactions are increasingly common among distressed companies seeking to manage their debt. Despite the controversy, the court ruled that SSB's broader restructuring plan would remain intact, minus the indemnification clause.
In its findings, the court criticised SSB's decision to select lenders through private negotiations rather than through an open market process. Before the 2020 agreement, SSB reportedly carried $2.4 billion in loans. Following the bankruptcy proceedings in 2023, the company's equity was redistributed among select lenders, while others received less than the full value of their debts.
Serta Simmons executives have not commented on the ruling. The appeals court's decision builds on a June judgement in favour of a group of preferred lenders. This ruling forms part of a broader context of scrutiny surrounding corporate debt practices.
The case highlights the challenges faced by companies navigating financial distress and the tensions that arise in balancing the interests of different creditor groups. While SSB's restructuring plan aims to stabilise the company, the fallout from the 2020 debt deal underscores the complexities of such transactions and their long-term implications.
Source: www.furnituretoday.com