management transaction

Serta’s Bankruptcy Court Win Bolsters Future for Favored Lenders

Bankrupt Serta Simmons Bedding LLC’s recent court win for a deal to get a cash infusion from creditors who were then moved up higher in payout priority bolsters other distressed companies’ odds of pursuing the controversial debt restructuring tactic.

The US Bankruptcy Court for the Southern District of Texas’s June decision is the first time a court ruled on the merits on the so-called debt liability management deals that have spurred lender-on-lender disputes, attorneys said.

The issue has come up before, both in and out of bankruptcy cases. But Judge David R. Jones’ opinion in Serta’s Chapter 11 could embolden more companies and lenders to employ the strategy in the estimated $1.4 trillion market for syndicated commercial loans.

“It is somewhat of a momentous ruling,” said Jennifer Taylor, a partner at O’Melveny & Myers LLP.

Among the companies that have similarly controversial debt management deals and sought bankruptcy in Houston are Incora, Diebold Nixdorf, and KKR Co.’s Envision Healthcare Corp.

TPC Group, J. Crew, and Neiman Marcus have also pursued deals and landed in bankruptcy.

Open-Market Purchase

Serta, one of the largest US bedding makers and distributors in North America, filed for Chapter 11 in January with about $1.9 billion

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