The Cost of an Improper Uptier: Inside Serta’s Damages Math and the Rejected Failure to Mitigate Defense

Herrick Restructuring & Finance Litigation Department partners Christopher W. Carty and Elizabeth Plowman, along with associate Hunter G. Waters, authored an article for Octus’ Expert Views series discussing a recent post-trial decision by the U.S. Bankruptcy Court for the Southern District of Texas in the Serta Simmons Chapter 11 case. The article outlines how courts may calculate damages in future disputes involving non-pro-rata liability management exercises ("LMEs") and how excluded lenders may respond to the ruling.

The article notes that the Honorable Christopher Lopez of the U.S. Bankruptcy Court for the Southern District of Texas "ruled that the majority participating lenders in Serta’s uptier breached the pro-rata sharing provision in Serta’s credit agreement and awarded $261.13 million in damages plus 9% prejudgment interest (estimated at over $400 million in total) to the excluded lenders (later adjusted down to $161.5 million in total)."

The article explains that this ruling is notable on multiple fronts, "As a rare post-trial ruling in an LME litigation, the Serta decision provides the market with new insight into how courts will measure damages in future LME disputes premised on a breach of a pro-rata sharing provision. Additionally, according to the court’s reasoning, excluded lenders can help rebut a failure to mitigate defense by showing post-LME efforts to test the market to sell their debt and by testifying to the subjective value of their LME claims."

Read the full article in Octus here. 

A PDF of the article can be found here.