Serta Simmons committee objects to some terms of DIP facility

By Sarah Lizee

Olympia, Wash., Feb. 23 – Serta Simmons Bedding, LLC’s official committee of unsecured creditors expressed some concerns with the company’s proposed $125 million asset-based lending debtor-in-possession facility in an objection filed Wednesday with the U.S. Bankruptcy Court for the Southern District of Texas.

At the heart of the cases is a dispute over the debtors’ 2020 recapitalization and its impact on a group of subordinated lenders. The debtors seek a declaratory judgment from the court that the recapitalization was propose.

According to the debtors, their ability to emerge from Chapter 11 is “inextricably tied” to a resolution of the litigation.

The committee said that, against this backdrop, it has only limited issues with the DIP facility.

The group said that if the 2020 recapitalization is modified or unwound as a result of an adverse ruling, the debtors’ capital structure could change, creating alternative areas for investigation and potential challenge. In that case, the committee said its right to request an extension of its challenge period should be preserved.

The committee also said the facility improperly limits its ability to fulfill its statutory duties through broad restrictions on its use of cash collateral.

The facility provides a $50,000 investigation budget for the committee, and requires the committee to obtain standing and start a challenge within 60 days.

“Given the complexity surrounding the debtors’ $1.9 billion debt structure, the budget should be increased and the challenge deadline tolled upon the committee’s filing of a motion for standing,” the committee said in its objection.

The group also said its post-default carve-out is limited to $150,000, compared to $5 million allocated for the debtors. The committee said its carveout should be increased, or the total post-default carveout should be unallocated among estate retained professionals, given the impact a default would have on the plan.

Lastly, the committee said the debtors seek a predetermination, without any evidentiary support, that the obligations arising under the DIP facility automatically constitute a diminution in value warranting adequate protection.

“Any adequate protection afforded should be limited to proven diminution in value of the lenders’ interest in their collateral at a subsequent hearing,” the committee said.

As previously reported, the company gained court approval to access $35 million of the DIP financing.

The DIP facility is being provided by Eclipse Business Capital LLC, a lender outside of the debtors’ existing capital structure.

Interest on the DIP facility is SOFR plus 450 basis points. There is a 0.5% commitment fee and a $2.25 million closing fee. There is also a $1.56 million exit fee, provided that the fee will be reduced to $1.06 million if the fee becomes due and payable on the same day that any exit financing is provided or arranged by Eclipse on the effective date.

The DIP facility is set to mature in six months from closing, or earlier in some cases, including if a plan or sale is consummated before then.

There are some case milestones under the DIP facility, including confirming a plan no later than 30 days before the maturity date, and the plan going into effect by the maturity date.

At emergence, the DIP facility will convert to or be replaced by a $125 million exit ABL facility via Eclipse.

Serta, an Advent International portfolio company, is an Atlanta-based manufacturer and distributor of mattresses. It filed bankruptcy on Jan. 23 under Chapter 11 case number 23-90020.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.