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Welcome to the January 2025 edition of In the Know, Baker McKenzie's Leveraged Finance newsletter that analyzes significant trends and salient legal issues for participants in leveraged finance and high-yield markets around the globe.
On 31 December 2024, the Fifth Circuit Court of Appeals ("Federal Court of Appeals") ruled that the uptiering transaction conducted by Serta Simmons Bedding LLC ("Serta") did not constitute an "open market purchase", reversing the 2023 summary judgment of the Bankruptcy Court for the Southern District of Texas ("Texas Bankruptcy Court") that rejected the excluded lenders' claims for breach of the credit agreement. The Federal Court of Appeals also reversed the approval of certain plan provisions relating to an indemnity for the uptiering transaction. The Federal Court of Appeals' decision indicates that the open market purchase exception to the pro rata treatment of lenders, found in many credit agreements, will not justify an uptier; "[t]hough every contract should be taken on its own, today's decision suggests that [the open market purchase] exceptions will often not justify an uptier". However, especially in light of the Mitel decision of the New York Supreme Court addressed below, it is unlikely that this will mark the end of attempted uptiering transactions — at least in the US. In Europe, the position is likely to remain largely the same.
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