Serta Debt Ruling Lobs ‘Grenade’ Into Restructuring Strategies

An appeals court opinion striking down an “uptier” debt transaction between Serta Simmons Bedding LLC and a group of lenders is changing the calculus of some liability management exercises and sending ripples through the secondary debt markets.

The US Court of Appeals for the Fifth Circuit’s interpretation of the contract language that governed the uptier transaction—which became ubiquitous after the 2008 financial crisis—now threatens the popularity of liability management exercises that don’t treat all existing lenders equally.

The court’s New Year’s Eve opinion was the first time a federal appeals court weighed in on the controversial deal that shifted repayment ...