Better Health Reaches Deal With Lender Holdouts From LME 3.0 Bellwether Deal

Better Health has reached an agreement with its lenders that held out from participating in its non-pro-rata liability management exercise at the beginning of the year, according to sources. The holdout lenders exchanged their holdings for new debt, the sources said.

The holdout lenders that owned 3%, or about $20 million of the term loan due 2028, represented by Selendy Gay as legal advisor, were evaluating their options, including litigation, after the primary care provider, unfazed by the Serta decision, went ahead with its original non-pro-rata blueprint and incorporated a novel extend-and-exchange structure into its bellwether, layer-cake transaction.

The resolution between Better Health and nonparticipating lenders represent the latest example of creditors that were disadvantaged in a non-pro-rata LME but negotiated with the issuer to find a solution.
Other examples include Del Monte Foods, which settled with its litigating lender plaintiffs in April by taking them out with the proceeds of more first-out loans. AMC is close to a settlement with its noteholders following a deal last year that extended the movie theatre chain’s maturity runway.

The development also came at a time of continued maturing of LME, which has entered the 3.0 stage, according to sources.

Dealmakers have come up with innovative tiered-economics structures without touching the “open-market purchase” language that previous iterations, such as Serta, relied on to keep the non-pro-rata deal flow going. New LME structuring ideas have popped up, including “inside out,” which envisions requisite lender status changing hands from majority lenders to third parties or minority lenders. Meanwhile, Kirkland & Ellis debt finance lawyers, led by Austin Witt and David Nemecek, designed a capital structure solution for Warner Bros. Discovery’s corporate split-up that included a first-of-its-kind and controversial nonboycott covenant in relation to new issuances, the language of which shows the issuer’s perspective different from the typical cooperation wording.

Better Health’s deal with the lenders would close a chapter of controversies surrounding the high-profile LME as well as a previous incremental financing.

The Better Health deal had a mix of controversial elements, including weaponized nondisclosure agreements that drew investors’ ire. Lenders raised questions about the efficacy of the transaction. They also noted the downturn of the company’s loan price after securing an incremental term loan in October 2023 funded by lenders including Blue Owl, which received the best treatment in the LME.

Better Health’s LME, which garnered support from lenders holding 97% of the loans, featured an ad hoc group of lenders receiving par treatment split between new first-out and second-out loans, additional lenders swapping their loans at 85% split evenly between second-out and third-out, and the rest exchanging at 70% between second-out and third out.

The company, advised by Kirkland & Ellis and Evercore, entered into an agreement with supporting lenders to extend their loans’ maturity, creating a separate class, and then swapped those loans for new superpriority debt. Oregon Tool used a similar extend-and-exchange mechanism for its deal.
 

Better Health and its counsel Kirkland & Ellis, and Better Health’s sponsor Kinderhook did not respond to requests for comment. Selendy Gay declined to comment.