What the announcement didn’t say was that as a result of this transaction lenders took a controlling ownership stake of the company, converting much of their debt holdings into equity, while also receiving about $315m of takeback paper, according to sources.

Kirkland & Ellis and Houlihan Lokey advised the company, while PJT Partners advised the creditors, according to sources.

According to sources, first lien lenders had the opportunity to either get their pro rata share of a new credit facility, or to participate pro rata in takeback paper and equity as well as pro rata in a rights offering. Ultimately, several CLOs opted to receive just the takeback paper, these sources said. Negotiations started in December and the transaction was completed in January. The takeback paper includes strong covenant protections such as Serta and J Crew blockers, according to sources.

As detailed from ratings reports and sources, the transaction reduced debt from more than $1bn to between $300m and $400m including a revolver, paying down a senior secured term loan A due May 2024, exchanging the term loan B at a discount for a combination of new debt and equity, exchanging the term loan C at a discount for equity, and exchanging the second lien term loan for equity and warrants.

The deal reduced the ownership stake of private equity sponsors Centerbridge Partners and Blackstone from a controlling near 90% position to a small minority stake, according to sources. These former private equity sponsors previously went to great lengths to keep their investment alive in 2020, orchestrating one of the original controversial non-pro rata uptiering deals that set the tone for modern liability management exercises.

That transaction would get challenged in court and ultimately settled. An August 2021 decision by New York State Court Judge Joel Cohen denying certain motions to dismiss on key breach of contract claims memorialized the issues in that case.

It was one of a trio of similar structures in 2020 — including for Serta Simmons and Boardriders — where a select group of lenders struck a deal with the company to provide new capital and uptier their existing debt, priming another group of similarly situated lenders.

In Trimark, Oaktree and Ares, among others, were allowed to provide $120m in super senior first out new money and uptiered their existing debt, $307.5m worth, into a second out position, turning the remaining $261.5m first lien debt into effective a third-out facility — all above the existing second lien debt at the time.

This prompted the primed lenders to sue and after making it past the motion-to-dismiss stage, to settle the case on undisclosed terms. An interesting aspect of this settlement, 9fin has learned, was that it merged the second and third-out tranches back together, while leaving the new money in place in the senior position.

Trimark generated approximately $2.5bn of revenue for the twelve months ended 30 September, according to Moody’s.

Representatives of Trimark, Blackstone, Oaktree, Ares and Bayside did not respond to requests for comment. Oaktree and Centerbridge declined to comment.

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