Uptier Transactions After Serta and Mitel - TWO: Validity of Liability Management Exercises, Drafting Considerations

On Dec. 31, 2024, the Fifth Circuit issued its highly anticipated decision in the Serta case, addressing the contractual viability of uptier transactions and the enforceability of related indemnities in bankruptcy plans. The central issue in Serta was whether the uptier transaction violated the existing first-lien and second-lien credit agreements' pro rata sharing provisions. The court held that the transaction did not constitute an "open market purchase" under Serta's existing credit agreements and therefore violated those credit agreements' pro rata sharing provisions.

In a contrasting opinion regarding a similarly structured uptier transaction as that in Serta but with distinguishing facts, the New York Supreme Court's First Appellate Division held in Mitel that unlike Serta, the applicable credit agreement did not limit Mitel's ability to repurchase loans on a non-pro rata basis to Dutch auctions and open market purchases. The Mitel court also determined that the debt exchange did not violate the "sacred rights" of the non-participating lenders because the debt exchange was not an agreement to waive, amend, or modify the Mitel credit agreement.

Serta and Mitel highlight the importance of contract language in credit agreements and their holdings have the potential to significantly impact borrowers and lenders that have executed or are contemplating liability management exercises.

Listen as our authoritative panel explores the potential implications of the Serta and Mitel decisions on liability management exercises and provides suggestions for structuring and drafting uptier transactions going forward.

• Overview: contractual viability of uptier transactions
• Serta decision
• Mitel decision
• Key distinctions between Serta and Mitel
• Implications of these cases and others on borrowers and lenders and the continued validity of uptier transactions and liability management exercises
• Structuring and drafting considerations in light of these decisions
• Key takeaways and practitioner pointers

The panel will address these and other key considerations:

• What is the background, procedural history, and ruling in the Serta case?
• What is the significance of the Mitel case and how does this ruling differ from the Serta decision?
• What are the possible implications for borrowers and lenders contemplating uptier transactions or liability management exercises in light of these decisions?
• What are some key drafting and structuring considerations for credit facilities under the current legal landscape?