Del Monte Foods is seeking bankruptcy court’s blessing of a comprehensive settlement reached in mediation with key case constituents that resolves potential litigation, facilitates a going-concern sale, confirmation of a Chapter 11 plan, and an orderly wind-down of the estates.

The proposed settlement has broad support from estate fiduciaries and key constituencies, including the debtors, the special investigation committee (SIC), UCC, ad hoc term lender group, and Del Monte Pacific Limited (DMPL). It resolves all challenges and threatened litigation by the UCC against the prepetition secured parties, DIP lenders, DMPL, and other third parties, including disputes over secured creditor rights, deficiency claims, DMPL’s general unsecured claims, prepetition transactions, and avoidance actions.

Key terms of the settlement include:

• $8m cash recovery funded by the DIP term loan lenders for the benefit of GUCs;
• exclusion of deficiency claims and DMPL's $164m in asserted claims from the GUC cash recovery;
• DMPL's agreement to subordinate its claims and cooperate in the sale and plan process;
• assumption of the debtors' defined benefit pension plan by the stalking horse bidder;
• release of avoidance actions and estate causes of action;
• funding of a wind-down budget for administrative and priority claims;
• appointment of a claims oversight administrator;
• professional fee caps and reductions;
• a litigation standstill and tolling of challenge deadlines; and
• broad mutual releases among the settlement parties and subordination of insider claims except for specified compensation and benefit claims.

According to the settlement approval motion, the debtors were “deeply concerned” that the impact of litigating these disputes could be devastating to the sale process and the cases — particularly considering that GUCs currently sit behind approximately $1.5bn in secured debt and priority claims.

A hearing to approve the settlement has been scheduled for 20 January before District of New Jersey US Bankruptcy Judge Michael Kaplan.

The Chapter 11 docket can be found here.