Hearthside Food Solutions has struck a settlement with as many as seven non-steerco parties within the first lien ad hoc group who were previously not offered some of the potentially more valuable parts of the economics in the company’s debt restructuring and now are getting cut in, according to sources.

The settlement, which was just finalized this week, allows non-steerco members of the group of lenders advised by Gibson Dunn to participate in from 50% to 75% of their pro rata share of the 35% of the holdback portion of the $200m rights offering that they were previously left out of, these sources said.

The steering committee included Apollo, Oaktree and Antares as part of the ad hoc group that organized with Gibson Dunn and PJT Partners; Apollo holds $372.3m, Oaktree $255.6m and Antares $189.4m, according to the 2019 disclosure, though other holders with more than $100m of the term loan included funds of Hein Park, Ivy Hill, Marathon Asset Management and Varde Partners. The problem arose, however, because there were 27 members of the ad hoc committee and most of them were not on the steerco. Six or seven of those funds were incensed at the unfavorable economics for non-steerco members, and threatened to hire law firm Quinn Emanuel if they were not improved, according to sources.

The reason for the disparity between steerco members as documented in the existing restructuring support agreement stemmed back to the cooperation agreement that was renegotiated more than a year ago roughly at the time that Apollo joined the steerco. That new co-op included a carve out for the steering committee that would allow them to take a larger portion of DIP fees and the rights offering.

Specifically, the $200m rights offering was backstopped by the steering committee of the first lien group where 35% of it was a “holdback” for the steerco, and just 65% would be offered to the rest of the first lien parties, all at an implied $470m equity value.

The settlement allows the 7 non-steerco funds to get between 50% to 75% of their pro rata share of the 35% holdback portion. This settlement will effectively create three different treatments within the same first lien class — one for the steerco, one for the non-steerco settlement parties, and the last for first lien holders who are not party to the settlement nor in the steerco.

Bids on the first lien term loan are in the low 50s presently, according to sources, while 9fin has reportedthat Apollo bought much of its position in the high 70s.

Hearthside filed for Chapter 11 bankruptcy in the Southern District of Texas on 22 November amid operational challenges, a child labor investigation, substantial debt service payments, and an impending maturity wall.

Representatives for the Debtor and Apollo did not respond to requests for comment.