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LME transactions helped close 2024 with two decisions being issued — Mitel Networks and Serta Simmons. While Serta’s uptier was found to be invalid, Mitel received a favorable decision from the New York Appellate Court, First Department with the court reversing the trial court and granting all of the defendants’ motions to dismiss in the pending uptier case after finding that an exchange is a “purchase” under the loan agreements, and that the consent of the excluded lenders to the uptier was not necessary as the excluded lenders were not “adversely directly affected” by the amended loan documents.

Contrary to the Serta decision’s chilling effect on uptiers, Mitel could even embolden sponsors and company-side advisors moving forward and excluded lenders should brace themselves for more non-pro rata LMEs in the future, according to Shai Schmidt of Glenn Agre.

“While the credit agreement in Mitel is distinguishable, in many respects, from most credit agreements we’ve seen recently, I expect borrowers to cite Mitel in defense of future non-pro rata LMEs,” Schmidt commented to 9fin.

Schmidt points out that the court focused on whether the uptier exchange involved an actual amendment to the pro rata sharing provision regardless of whether the transaction altered the waterfall, something that leaves open a broad application to other transactions even if the documents are not similar.

“Given the Mitel decision and the fact that the underlying issues that gave rise to the current wave of LMEs are still there, I do not expect any type of slow-down.”