In re Serta Simmons Bedding, 125 F.4th 555 (5th Cir. 2024) | Case Summary & Author’s Comment By: Chase A. Stone

The Fifth Circuit’s recent opinion in In re Serta Simmons Bedding, L.L.C., 125 F.4th 555 (5th Cir. 2024), by reversing the bankruptcy court, appears to be at odds with its own stated views in support of the open market; but more importantly, the opinion casts a sharp spotlight on the enforceability of uptier transactions in modern syndicated lending arising in Chapter 11 proceedings. The Fifth Circuit held that Serta Simmons Bedding’s (“SSB”) 2020 out-of-court restructuring violated the sacred right of ratable treatment owed to its lenders.  Despite the bankruptcy court’s finding (after trial) that the lenders knowingly negotiated the uptier transaction, the Fifth Circuit determined such negotiations did not occur within a legitimate “open market.”  Rather, the Fifth Circuit recharacterized SSB’s private negotiations as unequal and improper, and in doing so, regulated permissible creditor behavior. The appellate court’s decision may contradict the Bankruptcy Code itself, which provides for, among other things, Debtor-In-Possession super-priority liens.  By invalidating uptier transactions in out-of-court recapitalizations, the Fifth Circuit’s opinion may have a significant impact on similar restructurings in Chapter 11 proceedings moving forward.

Case summary & author’s comment as written by Chase A. Stone.

Find the full case summary at In re Serta Simmons Bedding, 125 F.4th 555 (5th Cir. 2024) - California Lawyers Association.