Restructuring

On June 6, 2023, a team of Weil attorneys won a decisive victory for Serta Simmons Bedding, LLC (SSB) after a five-day bench trial in the U.S. Bankruptcy Court for the Southern District of Texas. Judge David R. Jones issued an opinion confirming the SSB’s chapter 11 plan-of reorganization and granting the declaratory judgments that SSB and its co-plaintiffs sought. The decision is the culmination of three years of litigation surrounding a comprehensive restructuring transaction into which SSB entered with several of its lenders in June of 2020. 

SSB, the iconic American mattress manufacturer, sought to refinance its capital structure after the COVID-19 pandemic upended its business in the spring of 2020. Advised by a team of Weil Restructuring attorneys, SSB engaged in months-long negotiations with several groups of the company’s existing lenders to enhance the company’s liquidity and reduce its debt burden. After a competitive negotiation process, SSB agreed to a deal with several existing lenders that achieved those goals by allowing participating lenders to exchange their debt at a discount, on a non-pro rata basis, for new debt that had superior priority in the company’s capital structure.

Only three days after the company announced the deal, several of SSB’s existing lenders that did not participate in the transaction sought a preliminary injunction in New York State Supreme Court to prevent the transaction from closing, initiating the first of what would be five lawsuits across three jurisdictions between June 2020 and June 2023 that disputed the validity of the deal. After a team of Weil Litigation attorneys defeated the preliminary injunction in New York State Court, allowing the transaction to close and achieve the company’s capital needs, they defended SSB again in two lawsuits brought by non-participating lenders in the Southern District of New York and yet another lawsuit in New York State Supreme Court. Primarily at issue in each lawsuit was whether SSB’s existing credit agreement permitted the company to issue so-called “super-priority” loans to participating lenders in exchange for their existing loans, thereby subordinating the lenders that did not participate, as well as whether the company and the participating lenders breached the implied covenant of good faith and fair dealing by entering into the deal.

SSB filed for chapter 11 protection this past January with a restricting support agreement and prearranged chapter 11 plan enjoying the support of the overwhelming support of its senior secured creditors. In conjunction with its chapter 11 filing, SSB filed an adversary proceeding in Bankruptcy Court against the non-participating lenders that had sued the company over these issues, seeking declaratory judgments that the company’s credit agreement permitted the 2020 transaction and that the company and its lenders agreed to the deal in good faith. Victory in the adversary proceeding and a judgment declaring the 2020 transaction valid were essential to confirmation of SSB’s chapter 11 Plan of Reorganization. The pending actions in S.D.N.Y. and New York State Supreme Court were stayed as a result of SSB’s bankruptcy filing.

SSB won partial summary judgment on the first issue in March, when the Bankruptcy Court held that the non-pro rata exchange of existing debt for super-priority debt in the 2020 transaction constituted an “open market purchase,” a type of transaction explicitly permitted by the company’s credit agreement.

The Bankruptcy Court left for trial outstanding disputes not addressed at summary judgment. Primarily at issue was whether SSB and the participating lenders breached the implied covenant of good faith and fair dealing. Over four days of trial, the Weil team presented evidence of its clients’ good faith in negotiating and agreeing to the 2020 transaction (counsel from Gibson Dunn & Crutcher LLP represented the priority term lenders and presented their evidence). In his opinion confirming the company’s chapter 11 plan, Judge Jones called the evidence of SSB’s good faith “overwhelming,” describing the 2020 transaction as the culmination of “arm’s length negotiations by economic actors acting in accordance with the duties owed to their respective creditors, investors and owners.” The victory paves the way for the company’s successful emergence from chapter 11.

The Weil Restructuring team was led by Restructuring Department Co-Chair Ray C. Schrock, and included partners Alexander Welch and Gabriel Morgan, as well as associates Stephanie Morrison, Loren Findlay, Kenny Hildebrand, Felicity Young, Emma Wheeler, Hillarie James, Jonathan Goltser, Carlos Sardina, John Zhang, and Ian Roberts. The Weil Litigation team was led by Litigation Department Co-Chair David Lender and partners Luna Barrington and Ted Tsekerides. The trial team also included counsel Richard Gage, as well as associates Taylor Dougherty, Joseph Rausch, Angelo Labate, Elaina Aquila, Nick Reade, Iqra Asghar and Kara Smith.