Minority Lenders Score a Win
The appeal was brought by a minority group of first-lien lenders holding roughly $164 million in claims. They argued the reserved equity tilted recoveries in favor of majority lenders who had signed a restructuring support agreement (RSA).
Attorney David Hillman of Proskauer Rose, representing the minority lenders, said the ruling could rewrite the script on liability management transactions (LMTs), a controversial restructuring tactic where majority lenders cut deals that sideline dissenters.
“This decision reshapes the liability management playbook,” Hillman said Friday, adding that exclusive backstop rights must now either be shared or tested in the market.
A Precedent Echoing Serta Simmons
Judge Hanen leaned on the Supreme Court’s 1999 North LaSalle decision, which struck down a similar exclusive opportunity for equity holders, and the Fifth Circuit’s 2024 Serta Simmons ruling, which voided a plan that treated creditors unequally.
“While debtors in this case can argue that the plan itself treats all creditors the same, Serta rejects a surface-level or overly formalistic inquiry into equality,” Hanen wrote, likening ConvergeOne’s deal to the controversial precedent.
