💥Tire-d of Creditor on Creditor Violence💥
ATD lenders' duke it out, Northvolt files, Stoli and Solaredge updates + more.
⚡️Update: American Tire Distributors Inc.⚡️
You’ll recall that American Tire Distributors Inc. and 12 of its affiliates (collectively, the “debtors”) filed chapter 11 cases redux in the District of Delaware (Judge Goldblatt) back on October 22, 2024, which we recently covered:
The debtors filed their cases “...with a line of sight to successfully consummate a going concern sale” with a bit more than $30mm in cash on hand and an expectation to burn another $95mm of liquidity during the first 13 weeks of the cases.1 At risk of stating the obvious, the debtors needed a beefy DIP to fund the process, and an ad hoc group of DIP term lenders (the “DIP Term Lenders”)2 was more than willing to graciously lend a hand — and by “graciously lend a hand,” we mean (i) pony up $250mm in new money (with $125mm available during the interim period) (ii) while also getting the benefit of a roll up of approximately $75mm in 2024 Delayed Draw FILO Loans (iii) and $750mm (of $975mm) of prepetition term loans on a non-pro rata basis. Significantly, the DIP Term Lenders hold 100% of the 2024 Delayed Draw FILO Loans and approximately 90% of the prepetition term loans.
As our readers undoubtedly remember, way back in June ‘20, Serta Simmons Bedding LLC (“SSB”) attempted something similar in an out of court transaction and closed a “liability management exercise” that allowed a subset of its lenders to both infuse new capital into SSB and roll up certain of those lenders’ existing debt obligations into new “super priority obligations” that primed the other lenders in the same facility — in other words, those other non-participating lenders would be left holding the bag if (read: when) the transaction didn’t work and SSB found itself in a formal in-court restructuring proceeding.3 Shocking no one, the transaction precipitated a significant amount of litigation, both prior to and during SSB’s bankruptcy, and became synonymous with SSB itself — “uptier” and “Serta” are used interchangeably to describe this kind of priming transaction generally. Following similar transactions by other companies and ever-more fallout, lenders started contracting around these issues, requiring, for example, consent from all lenders to subordinate a credit facility’s existing debt to a new tranche (aka a “Serta blocker”) or to provide for a non-pro rata distribution. However, an exception to the Serta blocker also developed where, in the context of DIP financing specifically, unanimous lender consent wasn’t necessary.4
Turning back to our debtors, that exception and its interplay with the prepetition term loan facility’s pro-rata paydown requirements, which are not referenced in the exception, are at the heart of a dispute that’s since arisen in the debtors’ bankruptcy. While the first day hearing proceeded unremarkably,5 the following weeks got a lot more interesting: an ad hoc group representing losers … uh, we mean … “excluded lenders” (the “Excluded Lenders”), holding about 7.6% of the debt under the prepetition term loan facility and none too thrilled by being excluded from the party and the resulting prospect of a non-pro rata roll-up in which they wouldn’t be participating, appeared and immediately started lobbing grenades at the DIP.6
Boiled down, their argument was simple: the roll-up of the prepetition term loans under the DIP violated the prepetition term loan agreement’s pro-rata distribution rules — that is, under that agreement, each lender is entitled to its ratable slice of amounts received on account of the prepetition term loans and to permit otherwise, including as part of a roll-up, would violate those rules.7 But they had a simple solution: cut them into the deal and allow them to fully participate in the DIP, extravagant fees and all.8
