Joseph C. Barsalona II Quoted in The Deal, “Serta Simmons Ruling Disrupts LMT Momentum”

Joseph C. Barsalona II, partner in the Bankruptcy, Restructuring and Creditors’ Rights practice at Pashman Stein Walder Hayden P.C., was recently quoted in an article in The Deal titled, “Serta Simmons Ruling Disrupts LMT Momentum.” The article discusses liability management exercises (LMTs) and a recent U.S. Court of Appeals for the Fifth Circuit ruling which found that fifth circuit rules lenders were not treated equally in Serta Simmons Bedding LLC’s June 2020 liability management transaction.

"This is the biggest blow to LME that we have seen yet," said Joseph C. Barsalona II. "Will it be the last? We don't know – but it's certainly the biggest thus far."

The reversal of Judge Jones' decision to allow indemnification within the bankruptcy plan, however, will force shifts in approach on the lender's side.

"For lenders, it's a different calculus — by removing the indemnification, that is a death knell for a lot of these deals," Barsalona said. "Banks aren't going to want to get into litigation wars left right and center if they don't have a backstop at the company."

In the aftermath of Judge Jones' resignation, the ruling could mean good news for practitioners on the East Coast.

"Angry excluded creditors could target those types of now-illegal indemnification provisions of confirmed plans in the Fifth Circuit, if they're not too far away from equitable mootness. We may see more busted LME bankruptcies go to other circuits as a result, including the Third Circuit,” said Barsalona.