Moelis’ Klein Sees Capital Markets Gaining Traction in Restructurings With Lowering Rates; First Brands Group Brings on Advisors to Evaluate Options

Introducing the Special Sits and Distressed Weekly, a merger between Octus’ Americas Weekly and Cleansing Materials. The Special Sits and Distressed Weekly dives into recent trends in the world of chapter 11 and prebankruptcy and highlights the most topical work from Octus’ editorial teams on stressed and distressed topics.
 

By Patrick Fitzgerald

With the Federal Reserve cutting interest rates for the first time since December 2024 during September’s Federal Open Markets Committee meeting, Moelis’ Barak Klein, managing director and co-head of the firm’s U.S. capital structure advisory practice, sees capital markets coming back as a ‘major part’ of corporate restructurings.

“I think you’re going to see a lot of crossover type deals where there’s a capital raise at junior level, with senior lenders doing this, that and the other,” Klein explained. “I think you can see that hybrid value funds in the bottom half of the capital structure are coming into play.”

“We’re seeing that across multiple situations that we’re involved in,” he said. “We just did a deal for a leading sponsor where we refinanced the capital stack out instead of having to restructure, [and] that’s going to happen more and more.”

In other developments, Octus has been closely reporting on the latest news at Medical Solutions, where a recently inked cooperation agreement banding together a steering committee of certain large lenders has roiled the company’s non-steerco lender base. This is important because it incorporates potentially tiered treatment for lenders as compared to previous situations in which preferential treatment would be negotiated as part of the transaction.

In terms of whether the market will see more cooperation agreements with a carve-out clause in the near-term, Klein commented that “it goes with the theme of ‘depends on the person, the place, and the thing’.”

“Then the question is how creative can one be, and what can people agree to,” he added. “I think they’re pre-baking economics for steerco participants relative to a step down for the rest of the group, and then even other later participants – we’ll see how far folks can carry that.”
 

 

First Brands

First Brands Group and its lenders are working with advisors to evaluate options, including a restructuring contingency, as it wrestles with questions about the quality of its financial reporting and more than $4.5 billion of debt maturities in 2027. The developments come as First Brands’ path to a straightforward refinancing of its 2027 maturities has become increasingly complicated in recent weeks. Additionally, several term loan lenders to First Brands have gone restricted in recent days. Further coverage of First Brands can be found HERE.

Medical Solutions

A cooperation agreement in the market with potentially tiered treatment baked in has drawn protests, doubts and questions from investors about the practice of forming united fronts. The new co-op banding a steering committee of certain large lenders in Medical Solutions took effect on Sept. 12 as an old co-op uniting over 90% of first lien lenders expired on the same date. The steerco comprises about 56% of the first lien loan and some second lien holdings. The new co-op is open to all lenders and some non-steerco lenders have signed onto the co-op. The new loyalty pact for lenders to the Centerbridge Partners-backed clinician staffing company includes some provisions that allows for preferential treatment for steerco lenders’ first lien and second lien holdings in a potential liability management exercise. Further coverage of Medical Solutions can be found HERE.
 

Office Properties Income Trust

An ad hoc group of Office Properties Income Trust cross-over noteholders hired a financial advisor as the REIT negotiates a potential deal with its creditors ahead of mandatory prepayments and more than $1 billion of 2026 and 2027 debt maturities. Octus reported on Aug. 20 that an ad hoc group of cross-holders of the company’s bonds engaged counsel to discuss options with the REIT, which is working with its own advisors, and may potentially pursue an out-of-court restructuring or file for chapter 11 bankruptcy. Further coverage of Office Properties Income Trust can be found HERE.

Inotiv

Inotiv is working with a financial advisor to address debt maturities in 2026 and 2027. Inotiv has a $269 million term loan due Nov. 5, 2026, and $21 million senior secured second lien notes due February 2027, ahead of an October 2027 maturity of $114 million of convertible notes. The publicly listed provider of drug discovery and development services to pharmaceutical and biotechnology companies has struggled to generate cash in the wake of a series of events, including a 2025 cybersecurity attack, mistreatment of animals at its facility and alleged “illegal” import of monkeys. Further coverage of Inotiv can be found HERE.
 

Serta Simmons Bedding

Judge Christpher Lopez on Sept. 16 denied a preliminary injunction request from lenders that did not participate in Serta Simmons’ 2020 uptier transaction. The excluded lenders sought injunctive relief to preserve $340 million in cash in the event they prevail in their breach of contract suit. The judge, however, ordered the participating lenders to file monthly reports on dissolutions of any of the approximately 300 participating lenders, which include CLOs, and encouraged the parties to consider mediation.

The action alleges the uptier transaction violated the 2016 credit agreement’s pro rata sharing provisions with a requested remedy that the participating lenders purchase the excluded lenders’ loans at face value. Octus’ Serta Simmons Bedding coverage is HERE.

Tehum Care Services

On Sept. 15, Judge Christopher Lopez issued a decision finding that settlement obligations owed to a state court plaintiff by nondebtors YesCare and affiliates are not released by the consensual third-party releases in the Tehum chapter 11 plan. The decision rests on the fact that the plaintiff – a known creditor – did not receive actual notice of the opt-out release form, as required by the court’s solicitation order, and therefore was not bound by the releases.

Monday’s decision is in line with Judge Lopez’s prior Aug. 8 decision holding that actual notice of the opt-out was required on known creditors, which YesCare appealed. Octus’ Tehum Care Services coverage is HERE.

Tricolor Holdings

At the first hearing in the Tricolor Holdings chapter 7 cases on Sept. 18, Judge Michelle V. Larson approved the chapter 7 trustee’s stipulation with Vervent Inc. to allow Vervent to continue as ongoing substitute for debtor Tricolor Auto Acceptance as the primary loan servicer under a series of securitization servicing agreements, an arrangement that existed prepetition. The “facilitation order” will provide clarity to customers and enable ongoing management of auto loans, including the repossession of vehicles.

Under the stipulation, Vervent is authorized to access and use funds from the collection accounts to fund servicing and transition costs, subject to the consent of Wilmington Trust, JPMorgan Chase Bank and Fifth Third Bank. TBK Bank and other lenders sought additional language to protect their collateral rights.

The trustee said it intends to seek authority to operate the debtors’ business for a limited period of time, including requesting interim approval of financing from certain key lenders. The operations motion would be filed by Monday, along with or followed by a financing motion.

The debtors were the nation’s seventh-largest independent auto dealer less than a month ago, with approximately 100,000 customers, before entering freefall bankruptcy. The company’s offices are “dead quiet,” with the trustee only gaining access to the company’s headquarters on Sept. 16, and the business is “not under control as of yet,” according to the trustee’s counsel. Octus’ Tricolor Holdings coverage is HERE.

Yellow Corp.

On Sept. 16, a three-judge panel of the U.S. Court of Appeals for the Third Circuit unanimously upheld the bankruptcy court’s decision rejecting objections to billions of dollars in multiemployer pension plan withdrawal claims against the Yellow debtors. The panel held that two Pension Benefit Guaranty Corp. regulations governing the treatment of the federal bailout funds for withdrawal liability calculations are valid.

The ruling is a major setback for MFN in seeking to recover its equity position in the debtors’ ongoing chapter 11 liquidation. Octus’ Yellow Corp. coverage is HERE.
 

Citgo Sale Hearing

The final day of the Delaware Court hearing on approval of Amber Energy’s $5.9 billion bid for PDVSA’s shares in Citgo owner PDVH was interrupted by New York Judge Katherine Failla’s highly anticipated decision validating the 2020 PDVSA bonds and related pledge of 50.1% of PDVH’s shares in Citgo. The ruling puts Dalinar Energy’s competing $7.9 billion bid at a disadvantage because it does not include a settlement with the 2020 bondholder like the bid submitted by Amber, an Elliott affiliate. Counsel for Amber called the Dalinar bid a “dead letter” after Judge Failla’s ruling. Counsel for Dalinar sponsor Gold Reserve countered that the decision does not settle the matter because it does not remove the U.S. Office of Foreign Assets Control prohibition against the bondholders enforcing their pledge. At the conclusion of the sale hearing, Judge Leonard Stark took approval of the bids under advisement. Octus’ coverage of Citgo is available HERE.

California Wildfire Legislation

The California State Legislature on Sept. 13 passed Senate Bill 254, which will add up to $18 billion to the California Wildfire Fund and provide financial support to investor-owned utilities, including Edison International’s Southern California Edison which is facing significant liabilities after destructive wildfires broke out in January. The bill requires property insurers to first offer to settle their subrogation claims with utility companies before attempting to sell them to third parties but does not include an earlier proposal to cap subrogation claims. Octus’ coverage of Edison International is available HERE.