Jurisdiction(s):
United Kingdom

US Serta uptier: Texas bankruptcy trial ends; ruling due summer 2026 on pro rata sharing breach after Fifth Circuit reversal, with implications for liability management deals and bankruptcy equal treatment

Published on: 31 March 2026

Published by a Law360 reporter

Legal News

Article summary

Lawyers for lenders shut out of the uptier transaction told US Bankruptcy Judge Christopher M Lopez he should conclude that Serta breached its credit agreement by swapping hundreds of millions of dollars of existing debt for fresh, higher-priority obligations as the challengers contended. Susheel Kirpalani of Quinn Emanuel Urquhart & Sullivan LLP, speaking for the excluded lenders, said only select financiers were allowed into the deal, contravening the pro rata sharing provisions in Serta's credit documents in those proceedings. Conversely, Gregg Costa of Gibson Dunn & Crutcher LLP, for lenders that joined the deal, pressed the court to dismiss those allegations, arguing the excluded investors had 'unclean hands' because they were the first to float a non-pro rata proposal to Serta. 'The excluded lenders threw the first punch,' Costa said. 'They started this; we were responding defensively.' The submissions on 25 March 2026 concluded a trial that began earlier this month on the excluded lenders' breach of contract claims, for which the group seeks at least in damages. At the close of the hearing, Lopez J said he would aim to issue a decision within the next 80–90 days, or in early July 2026. There's a lot to say about...

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