Restructuring Case Study (in 60 seconds)

Restructuring Case Study (in 60 seconds) Serta Simmons: Excluded Lenders awarded $261mm of damages Case 23-09001 Document 742 Filed in TXSB on 07/07/26 Page 1 of 48 ENTERED July 07, 2026 Nathan Ochsner, Clerk IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION IN RE: SERTA SIMMONS BEDDING, LLC, et al. Debtors. SERTA SIMMONS BEDDING LLC et al. Plaintiffs, v. AG CENTRE STREET PARTNERSHIP, et al., Defendants. CASE NO: 23-00029 CHAPTER 11 ADVERSARY NO. 23-00001 MEMORANDUM OPINION In June 2020, Serta Simmons Bedding, LLC and certain of its affiliates ("Serta") entered into a restructuring transaction with two lenders. The transaction was structured as an "open market purchase" under the relevant credit agreement to avoid triggering pro rata treatment with other first lien term lenders. The question on remand is whether the lenders who participated in the liability management transaction took the risk that the transaction would be deemed to constitute a breach of contract. ALRIGHT, WHO ACTUALLY RECENT SERTA SIMMONS BANKRUPTCY DECISION WHO ACTUALLY RECENT SERTA SIMMONS BANKRUPTCY DECISION COURT HELD THAT THE 2020 PRO RATA UPTIER TRANSACTION CONSTITUTED A BREACH WHICH RESULTS IN OVER $400 MILLION OF TOTAL LIABILITIES FOR THE PARTICIPATING LENDERS exception under $ 9.06(g) and parties proceeded without complying with $ 2.18(c), which requires purchasing participations (i.e., economic interests) in the First Lien Term Loans. Sophisticated parties accepted the litigation risk that came with it. And it almost worked. They litigated that risk successfully in New York state court and bankruptcy court. But the Fifth Circuit ultimately held the transaction was not an open market purchase. The result of the decision is that, both on record and applicable law, $ 2.18(c) now applies. Damages viewed from that perspective is not absurd. It is what $ 2.18(c) was designed to protect. Strict textual analysis was required to determine whether the 2020 Transaction complied with the Credit Agreement as an open market purchase without triggering any sacred rights. Now the text must be strictly applied when assessing damages. i. Prejudgment Interest The Credit Agreement says that any claim or dispute arising under or related to the Credit Agreement shall be governed by, and construed and interpreted in accordance with, New York law. 213 Prejudgment interest in New York is 9.00% per annum 214 and it is governed by N.Y. C.P.L.R. $ 5001. Section 5001(a) says that prejudgment interest on damages awarded on a breach of contract claim is mandatory: Interest shall be recovered upon a sum awarded because of a breach of performance of a contract... except that in an action of an equitable nature, interest and the rate and terms from which it shall be computed shall be in the court's discretion on emphasis added. CAPITAL ACADEMY Enroll Today (Link in bio) Case 23-09001 Document 742 Filed in TXSB on 07/07/26 Page 45 of 48 except under $ 9.06(g) and parties proceeded without complying with $ 2.18(c), 212 Sophisticated parties accepted the litigation risk that came with it. And it almost worked. They litigated that risk successfully in New York state court and bankruptcy court. But the Fifth Circuit ultimately held the transaction was not an open market purchase. The result of the decision is that, both on record and applicable law, $ 2.18(c) now applies. Damages viewed from that perspective is not absurd. It is what $ 2.18(c) was designed to protect. Strict textual analysis was required to determine whether the 2020 Transaction complied with the Credit Agreement as an open market purchase without triggering any sacred rights. Now the text must be strictly applied when assessing damages. i. Prejudgment Interest The Credit Agreement says that any claim or dispute arising under or related to the Credit Agreement shall be governed by, and construed and interpreted in accordance with, New York law. 213 Prejudgment interest in New York is 9.00% per annum 214 and it is governed by N.Y. C.P.L.R. $ 5001. Section 5001(a) says that prejudgment interest on damages awarded on a breach of contract claim is mandatory: Interest shall be recovered upon a sum awarded because of a breach of performance of a contract... except that in an action of an equitable nature, interest and the rate and terms from which it shall be computed shall be in the court's discretion on emphasis added. CAPITAL ACADEMY Enroll Today (Link in bio) Case 23-09001 Document 742 Filed in TXSB on 07/07/26 Page 19 of 48 LENDERS ARGUE THAT CHANGING THEIR EXISTING 1L DEBT INTO SECOND OUT DEBT PAYMENT UNDER SECTION 2.18(C) BECAUSE THE CONSIDERATION WAS ENTIRELY NON CASH. REJECTED THAT LOGIC, SAYING THAT A EXCHANGE STILL CONSTITUTES A PAYMENT PRINCIPLE, WHICH TRIGGERED THE AGREEMENT'S RATA PRO RATA SHARING PROVISIONS THE BANKRUPTCY COURT LATER HELD THAT EXCHANGING EXISTING 1L PAPER FOR SUPER PRIORITY DEBT CONSTITUTED A QUOTE IN RESPECT OF PRINCIPAL UNDER SECTION 2.18. WHICH TRIGGERED THE CREDIT AGREEMENT'S MANDATORY PRO RATA SHARING PROVISION PARTICIPATING LENDER GROUP RETAINED THE DISPROPORTIONATE INSTEAD OF PURCHASING FROM THE EXCLUDED FROM THE EXCLUDED AS THE DOCUMENT REQUIRED, THE COURT OF CONTRACT AND $140 MILLION OF PREJUDGMENT INTEREST WHICH CREATES OVER $400 MILLION OF AGGREGATE LIABILITIES FOR THE PARTICIPATING LENDER GROUP THIS IS AN IMPORTANT OPINION JUST NARROW OPEN MARKET PURCHASE EXCEPTION THE ENFORCEABILITY OF PRO RATA SHARING PROVISIONS AND IT LIKELY FUNDAMENTALLY CHANGE HOW FUTURE LOANS WILL BE STRUCTURED