(Bloomberg) -- Serta Simmons Bedding LLC’s bankruptcy judge said the mattress maker’s contentious 2020 debt deal was made in good faith, a decision that has ramifications for distressed debt investors and deals another blow to a handful of Wall Street giants.
The emergency refinancing at issue provided Serta with $200 million of new cash in order to stay afloat about three years ago, but pushed some lenders back in the repayment line as a result. That triggered lawsuits from left-out lenders including Apollo Global Management and Angelo Gordon & Co.
“There is no evidence of a breach of the implied duty of good faith and fair dealing by either the Debtors, the PTL Lenders or any of the other counter-defendants,” US Bankruptcy Judge David R. Jones wrote in an opinion on Tuesday, referring to the lenders that jumped up in the repayment line.
In the same decision, Jones approved Serta’s restructuring plan, clearing the way for the mattress company to exit Chapter 11 bankruptcy with its secured debt slashed from $1.9 billion to $315 million, according to a statement. The plan was intertwined with the now-infamous refinancing — its beneficiaries will now become Serta’s owners.
Both sides were aware the original credit agreement had so-called loose documents, which allow for controversial lending maneuvers, Jones wrote in the opinion. The entire situation could have been avoided with an extra sentence that closed that legal gap, he said.
But “they did not,” he added. “And this litigation ends with each party receiving the bargain they struck — not the one they hoped to get.”
The ruling — which comes on the heels of a decision that blessed another critical piece of the transaction — will likely solidify a model that can be used by other companies. Meanwhile, lenders will invariably try to figure out how to avoid fates similar to that of the losing group.
“Sophisticated financial titans engaged in a winner-take-all battle,” Jones wrote. “There was a winner and a loser. Such an outcome was not only foreseeable, it is the only correct result. The risk of loss is a check on unrestrained behavior.”
--With assistance from Reshmi Basu.
(Updates throughout with additional details on Serta’s plan and the court’s opinion.)
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