Court Opinion Review: The Latest PINO Vintage, LME Relief in Serta, Trinseo Goes After Claims Buyers and an Equal Treatment Workaround in QVC

Octus’ Court Opinion Review provides an update on recent noteworthy bankruptcy and creditors’ rights opinions, decisions and issues across courts. We use this space to comment on and discuss emerging trends in the bankruptcy world. Our opinions are not necessarily those of Octus as a whole. Today we consider the DISH DBS/DISH Wireless “prepack,” the bullet dodged by the LME market in Serta, Trinseo’s attacks on minority lender CastleKnight and a curious equal treatment maneuver in QVC.

DISH Served Cold

Just two months ago we discussed “prepacks in name only,” or PINOs, in the context of the Trinseo case. At the time, we thought it was extremely aggressive that Trinseo’s “prepack” plan only had two-thirds support from the key class of OpCo term lenders to the extent the debtors succeeded in designating the votes of their chief antagonist, CastleKnight (see below). We had a feeling you crazy cats would keep pushing the envelope, we just didn’t know how soon.

On June 30, we got the Mother of All PINOs – the DISH DBS/DISH Wireless chapter 11 in Houston. If this “prepack” were a technical challenge on British Bake Off, Paul Hollywood would refuse to have a taste for fear of catching cyclospora from the undercooked ingredients. Pru Leith would sadly shake her head saying that she asked for classic cruller and instead got a churro: a proper choux has eggs, dammit!

Way back in March, DISH DBS – the satellite/streaming television silo of parent EchoStar – entered into a restructuring support agreement under which EchoStar would use some of the proceeds from its “windfall” $23 billion sale of its 5G wireless spectrum to AT&T to pay off and refinance more than $9 billion in DISH DBS funded debt. We put “windfall” in quotes there because according to EchoStar, it really didn’t have much choice but to sell its 5G spectrum to AT&T and SpaceX for billions in profit after the U.S. Federal Communications Commission opened an investigation into EchoStar’s compliance with 5G buildout requirements.

Please, FCC: force me to sell my house, my dog and my collection of nonfunctional 1950s East German film cameras under these conditions.

There is a long backstory here. EchoStar purchased that 5G spectrum as part of a 2020 Department of Justice settlement that resolved (or, was intended to resolve!) antitrust objections to the T-Mobile/Sprint merger. Because the merger reduced the four national wireless carriers to three, the FCC sought someone, anyone, to build a competing fourth national carrier to replace Sprint before it would greenlight the deal.

EchoStar stepped up, offering to acquire and elevate T-Mobile’s Boost Mobile business into a free-standing national network using that 5G spectrum. EchoStar got the spectrum, but not without strings attached: a consent decree in the T-Mobile/Sprint case required EchoStar to comply with specific 5G network buildout milestones. If EchoStar failed to comply, then the spectrum would go right back to the FCC.

I’ll take Unexpected Bankruptcy Consequences of Antitrust Settlements for $2,000, Alex.

DISH Wireless, then separate from DISH DBS under the EchoStar umbrella, proceeded to spend billions on network infrastructure – including cell towers and equipment – to create that new national 5G network for Boost. Despite these efforts, in May 2025 the FCC launched an inquiry into EchoStar’s compliance with the buildout requirements, kicking off the process of taking away the spectrum and giving it to someone who might actually create competition for the three national carriers before the heat death of the universe.

Unlike your average big-case bankruptcy judge, the FCC apparently understands the importance of getting valuable assets out of the hands of hopeless companies and turning them over to someone else who might actually use them profitably. Who’d have thought?

EchoStar denied the allegations but the FCC pressed on, apparently convinced Americans urgently need another national carrier with tens of billions in infrastructure assets designed to deliver 25 daily fake personal loan offers to our phones. Faced with losing the 5G spectrum for nothing, EchoStar agreed to sell some of it to AT&T for $23 billion in August 2025. In September 2025, EchoStar agreed to sell the rest to SpaceX for more than $19 billion. Together, these sales confirmed the cancellation of the DISH Wireless 5G buildout – meaning the company wouldn’t be needing all those long-term cell tower leases. Keep that in mind.

One group watching these sales closely were the long-suffering DISH DBS bondholders. You see, all this spectrum cost a lot of money to buy, some of that money came from DISH DBS, but: DISH DBS, somehow, did not end up owning any of it. Instead, it got IOUs from its immediate parent, which by then owed money all over town and was, perhaps, not the best credit risk in the world. The bondholders really did not like that, and spent much of the last two years fighting to unwind these transactions.

The government-prodded spectrum sales provided EchoStar the means and the incentive to put the whole sordid affair behind them (billions and billions in cold, hard cash sufficient to pay off the long-suffering notes). That reality resulted in the March RSA with these same DISH DBS bondholders.

It’s called an “RSA” but, at the time, we were not really sure what the “R” stood for, since it sure didn’t feel like a restructuring: EchoStar agreed to put a bunch of money back into DBS, the intercompany loans would get unwound, bondholders would get better covenants and the 2026 noteholders would give up their make whole claims. There are some very minor economic amendments that need 100% consent, and thus may need a chapter 11 to get implemented, but you really had to squint to see why.

Unsurprisingly, the RSA is supported by more than the two-thirds majority of DISH DBS creditors required to accept the plan at virtually every level, meaning a stand-alone DISH DBS chapter 11 to bind holdouts would qualify as a prepack and, likely, sail through a quickie bankruptcy with little fuss.

Alas. We forgot to mention that EchoStar’s CEO is Charlie Ergen, who has been keeping Octus busy since we were Reorg Research. History doesn’t repeat but it does rhyme and it sure seems like Ergen decided not to do things the easy way. While DISH DBS creditors secured a deal funded with the EchoStar spectrum sale proceeds, creditors of DISH Wireless – now an orphan mobile network without spectrum to operate – were getting the high hat. Specifically, three major tower lessors – American Tower, Crown Castle and SBA – were not getting anything from the EchoStar cash.

With delightful nerve, DISH Wireless actually used the spectrum sale as a defense to the tower lessors’ claims. In litigation with both American Tower and Crown Castle, DISH Wireless asserted that the FCC’s buildout milestone investigation was a force majeure event that effectively canceled billions in DISH Wireless obligations on the tower leases. Sorry guys, we’d love to keep paying you to use those towers, but the feds just forced us to sell an asset we never should have had for billions in profit.

The tower lessors countered that EchoStar affirmatively chose to sell its spectrum for billions in profits (and use some of those profits to pay off DISH DBS creditors) rather than defending the FCC investigation or negotiating a different resolution.

Meanwhile, the spectrum sale to AT&T hit a snag: to close, the parties needed the district court overseeing the T-Mobile/Sprint antitrust litigation to modify its consent decree related to the DISH Wireless divestment, but the court had not done so by June 30. With a July 1 deadline to pay a $2 billion maturity looming and no spectrum sale proceeds from EchoStar to fund it, DISH DBS had to either secure an extension or file chapter 11.

DISH DBS obviously chose the latter, setting up a nice, clean prepack once the consent decree was modified, the sale closed and the AT&T proceeds came in. On July 15, two weeks after the filing, the district court entered the modified order, and on July 18 the DISH DBS debtors asked Judge Christopher Lopez to allow the $2 billion payment as part of the sale closing. This could have been a 30-day case!

Except: the company decided to use chapter 11 to lock in both the benefits of the deal for DISH DBS creditors and to resolve the DISH Wireless tower lessor obligations. EchoStar filed DISH Wireless, which it only moved into the DISH DBS silo in March, along with DISH DBS – so it could reject the tower leases and dramatically reduce billions in asserted lease rejection claims using section 502(b)(6) of the Code (which caps claims for damages related to leases of non-residential real property) if the force majeure argument failed.

Here’s the problem, though: the three largest tower creditors seek more than $5 billion in damages. That means their claims would dominate the class of unsecured creditors at DISH Wireless, possibly leaving those debtors without the requisite impaired accepting class. How to resolve this little quandary?

According to the tower lessors the plan has been in motion for a while. In August 2025, EchoStar caused DISH Wireless to agree to documents “memorializing” an $8.8 billion intercompany claim against it. According to the debtors, EchoStar affiliate DISH Network, or DNC, loaned DISH Wireless more than $13.6 billion for intercompany loans used to fund the abortive 5G buildout. After the buildout was canceled, DISH Wireless transferred the remaining Boost Mobile virtual carrier business – which uses AT&T infrastructure – to another EchoStar affiliate in exchange for a just less than $5 billion credit on the intercompany loan, leaving DNC holding the $8.8 billion claim.

Of course, that would not, by itself, solve the DISH Wireless voting problem because DNC, as a fellow EchoStar affiliate, probably qualifies as an “insider” of DISH Wireless – and insider votes don’t count for the acceptance requirement under section 1126 of the Bankruptcy Code. So, on the eve of the filing, DNC transferred the claim to a trust for the benefit of – you guessed it – DISH DBS creditors, effectively giving them an $8.8 billion vote to accept the joint DISH DBS/DISH Wireless plan that would outweigh the tower lessors’ rejecting votes.

Maybe that strategy works, maybe not – on July 16, tower lessor Crown Castle moved to designate, e.g., disregard, the trust’s vote to accept the plan, citing the bankruptcy machinations at work. The debtors also moved to cap the tower lessors’ votes at the section 502(b)(6) cap.

No mistake: this is all great content and we love it. But, our point today is that this is way too litigious to call the combined cases a “prepack” and demand they move together – DISH DBS and DISH Wireless – at supersonic speed.

In fact, doing the dual chapter 11 creates some risk for DISH DBS and its creditors. DISH DBS could have sailed right through chapter 11 as a true prepack, but tied to DISH Wireless, it must sit patiently, with its homework done and its permission slip signed and ready to go, as its less, uh, organized little brother hustles to brush his teeth and find some clean clothes.

This is clear as day in the debtors’ recent motion to pay down the already-matured notes as soon as the AT&T spectrum sale closes (an event that is now imminent given that the T-Mobile merger court finally entered the modified order needed to allow the sale to close). A pre-confirmation payoff of the notes might not have been necessary with a true prepack moving at true prepack speed.

Filing the cases together actually enhances the tower lessors’ potential hold-up leverage, allowing them to stall not just EchoStar’s proposed purchase of the remnants of DISH Wireless minus boost (essentially nothing but equipment and potential litigation claims against EchoStar, natch) but also the DISH DBS restructuring.

Will the DISH Wireless creditors object to that motion to pay $2 billion to the DISH DBS creditors from the AT&T sale proceeds? They’d be absolutely bonkers not to. If they can create enough fog to slow down the DISH DBS case, they could extract some extra value from impatient DISH DBS creditors.

A cynical observer – not us! – might note here that it seems like the debtors were hoping the word “prepackaged” on the combined plan would lead directly to the rubber-stamping of an extremely accelerated confirmation and DISH Wireless litigation/sale timeline. At the July 1 first day hearing, DISH’s chapter 11 counsel just kept repeating that magic word.

To what would have been our surprise only a few months ago, Judge Lopez was not convinced and refused to immediately approve the disclosure statement and bidding procedures. The DISH DBS plan by itself might qualify for rapid prepack treatment, the judge said, but DISH Wireless is a whole different kettle of fish.

Judge Lopez emphasized the need for “due process” before setting a confirmation schedule and, to our giddy delight, mused that he doesn’t really know what “prepack” even means anymore. Welcome to the trenches, your honor!

But before we go too crazy here, the debtors’ proposal was unbelievably aggressive and Judge Lopez didn’t pull the train to a complete stop. Instead, the judge said he would make himself available for a continued hearing on July 8, while making it very clear he did not necessarily intend to consider the DS at that time. The debtors plowed ahead as if the DS would go forward on July 8.

Crown Castle promptly sought to delay the key disputes to July 23 (the date of the hearing on approval of DISH Wireless’ de minimis $85 million DIP from putative insider purchaser EchoStar). On July 6, the debtors filed the previously mentioned motion to estimate the tower claims at the 502(b)(6) cap amount.

On July 8 Judge Lopez surprised us again by kicking the confirmation scheduling motion again, to July 23. The judge cited the need to indicate whether the DIP financing was approved in the DS before solicitation – kinda weak, really – but more convincingly said the parties should be able to take discovery on the DS and solicitation procedures motion. Blimey.

Octus went into detail on the possible disputes in a deep-dive on July 10, so we won’t delve into the merits here. What really interests us is, of course, the judicial dynamics at play. Debtors’ counsel seems to have thought they had a good chance of getting a Houston complex panel judge to go along with their strategy of using the legitimately prepackaged DISH DBS deal to secure prepack treatment for the bloodstained DISH Wireless silo, with all the attending benefits of moving as fast as possible on the tower claims litigation with the least amount of fuss.

But, as we’ve been saying in this column for a few months now, things are changing in Houston and Judge Lopez, in particular, has taken to expansive readings of due process in bankruptcy.

Where’s a humble debtor supposed to go these days? We aren’t sure, and that’s kind of fun. Of course New Jersey seems like maybe the last no hesitation debtor-friendly jurisdiction left. But Judge Michael Kaplan has thrown enough curveballs that we wouldn’t be surprised if the biggest, messiest cap structures still default to Houston.The perception seems to be that mega-monster cases with org charts that make your eyes bleed are best taken to Bayou City. We’ll continue to bang trashcans on the sideline.

At the very least, DISH DBS has an easy out from this bizarre marriage of debtors Goofus and Gallant: the RSA gives the DISH DBS debtors the option to cut DISH Wireless free and pursue a separate, accelerated confirmation process, as counsel for one of the tower lessors pointed out at the first day hearing. With the AT&T sale now set to close imminently, and the reek of all that filthy lucre in the air, why would they want to wait around for the tower lessors (and the newly appointed and lawyered-up creditors’ committee on which they sit) to have their say?

We expect the debtors to resist pulling that trigger – a tacit admission their combined-plan strategy was a mistake – until the latest possible moment. As the tower lessors have also pointed out, once DISH DBS cuts DISH Wireless loose, there is zero reason for the latter’s case to proceed with alacrity – the business is already gone.

But why should DISH DBS creditors care? This may be the one piece of the mousetrap that was overlooked. Sure there are some new intercompany claims and the cases moving together means estate claims against Echostar may go away, but those don’t equate to immediate dollars and cents in creditors’ pockets. Jamming these cases together was a bold strategic move. But with a reticent judge, the debtors need the DISH DBS creditors to care about the cases riding together and it doesn’t appear that they do. Regardless, this will be a fun one to watch.

Sleep Tight

Speaking of possible grounds for avoiding the complex panel, on July 7 Judge Lopez issued his long-awaited decision in favor of the excluded lenders in the neverending Serta Simmons uptier litigation. In doing so, Judge Lopez tacitly rejects Judge Kaplan’s barmy Del Monte non-pro-rata rollup decision and restores the status quo for liability management disputes. No, you can’t avoid liability for receiving non-pro-rata goodies and not sharing them with the whole class when you were supposed to, simply by taking new debt instead of cash in exchange for your old debt. At least not outside New Jersey!

Recall that in Del Monte, Judge Kaplan found that new debt – in the Del Monte case, new DIP rollup debt – is not a “payment” that must be shared with all lenders pro rata under the pro-rata sharing provision in virtually every credit agreement. Judge Lopez was well aware of the Del Monte ruling before issuing the Serta decision, thanks to supplemental briefs filed by the parties.

According to the Serta participating lenders’ brief, Judge Kaplan concluded it is “evident” from the language of the standard sharing provision that “payment” requires “an exchange of dollars or cash equivalents,” meaning the sharing provision is actually, as they argued at trial, a “cash turnover provision.”

Without mentioning Del Monte at all (a pretty telling omission), Judge Lopez disposes of this “evident” conclusion with extreme prejudice in his Serta ruling. Caveat: Serta involves a prepetition transaction, Del Monte involves DIP financing. Different context but the same contractual language.

The Houston judge sensibly finds the pro-rata sharing provision’s open-ended language and carve-outs for ratable treatment for noncash transactions would be “surplusage” if debt exchanges were categorically excluded from pro-rata sharing. “If debt exchanges don’t trigger [section] 2.18(c),” Judge Lopez explains, “there would be no need to carve-out these non-cash transactions.”

The judge also relies on the old contract construction heuristic that “a specific contractual provision controls over a general one” in concluding that the sharing provision’s tailored carve-out structure overrides a nearby provision requiring borrower payments to lenders be made in U.S. dollars and concludes the “direct connection between the debt exchange effected during the 2020 Transaction and the satisfaction of the Participating Lender’s First Lien Term Loans could not be clearer.”

Let’s not think about this one too much, folks: the only analysis necessary is whew, dodged a bullet there. Judge Lopez’s reading comports with market expectations on pro-rata treatment much more closely than Judge Kaplan’s, though of course he did not invoke the “everybody knows what this means” heuristic of contract interpretation out loud.

Of course, “market expectations” are not why Serta was filed in Houston in the first place; Serta was filed in Houston during the era of former Judge David R. Jones’ vibes-based rulings that sure seemed to greenlight every sort of minority-abusive, sponsor-friendly uptier imaginable. Bravo to the Fifth Circuit for eliminating this safe haven for majority hijinks.

Speaking of the Fifth Circuit, let’s not count our bullets fully dodged until this is resolved on appeal. The case sets up a collision of the unstoppable force of market expectations versus the immovable object of the Fifth Circuit hating on every high-profile bankruptcy decision out of Houston in recent years.

Until then, this is one more data point favoring the conclusion that our current Judge Lopez is a more likeable, better version (a la Dave), and might be here to stay.

CastleKnight Under Siege

We’ve been regaled with tumultuous tales of villainous vulture funds swooping in, buying debt and trying to waylay innocent companies on the road to restructuring since we were children, sleeping in our cots in a four-to-a-room BigLaw office – yet the anti-investor rhetoric from the debtors and majority creditors in the Trinseo case seems to have ratcheted up to a new level, with the prepackaged plan proponents intent on not only working the ref by impugning CastleKnight’s motives, but actually proposing to take away its right to vote real debt on a chapter 11 plan.

The Trinseo debtors hardly come to chapter 11 as paragons of virtue themselves. In 2023, the debtors undertook a double-dip liability management exercise that created a new class of favored “Super HoldCo lenders” senior to the company’s previously first-priority OpCo term lenders.

What’s more, in 2025 the company undertook an exchange offer and caused the OpCo obligors to issue new senior revolving credit facility debt senior to the OpCo loans that ended up being held by the super HoldCo lenders – giving them a senior position at both the HoldCo and OpCo level.

Basically, they pulled a DISH DBS maneuver to give the super HoldCo lenders a controlling claim at the OpCo debtors – except with real money invested in the form of the RCF. Maybe not necessarily good faith money, but money nonetheless.

To cap off these maneuvers, the debtors filed chapter 11 on May 26 with a “prepackaged plan” – another PINO! – that would hand the company over to, surprise!, the super HoldCo lenders, effectively validating the prepetition transactions. The debtors did manage to “win” the votes of about 60% of remaining OpCo term lenders with $35 million in take-back term loans and subscription rights to purchase 10.74% of reorganized equity for $60.75 million under the plan.

Yes, 60% – below the threshold for plan acceptance by the class of OpCo term lenders. Under our mandatory rule requiring prepetition two-thirds majorities of all funded debt to call the case a prepack, this one FAILS. The 40% blocking position is held by a group of dissenting OpCo lenders dominated by CastleKnight, which promptly sued to invalidate the 2023 and 2025 transactions and disallow all claims created thereby, effectively restoring the pre-transaction capital structure.

According to the CastleKnight group, the prepetition transactions and chapter 11 are all part of a preordained “loan to own” strategy by the super HoldCo lenders. The debtors and senior lenders maintain that “the Super HoldCo Lenders were non-insiders engaged in nothing more than the exercise of contract rights,” ignoring allegations the super HoldCo lenders’ real intent was “to control these chapter 11 cases.”

Well, duh. Assuming the purpose of the prepetition transactions was actually to give the debtors “runway” to avoid bankruptcy, yadda yadda yadda, ask yourself: Would the transactions look any different if they were intended to set up a chapter 11 takeover? Of course not. If it looks, swims, flies, quacks and poops on my difficult-to-clean canvas convertible top like a duck, it’s a duck.

But in true Captain Renault style, the debtors and super HoldCo lenders are shocked! Shocked! that CastleKnight acquired left-behind OpCo loans and intends to litigate the legal rights related thereto in a fulsome and due process-compliant fashion. A minority lender challenging a prepetition LME! Quelle horreur.

Putting aside all the invective about vultures buying up debt to extract hold-up value, the debtors and super HoldCo lenders argue the CastleKnight group’s suit must be immediately dismissed under the terms of an intercreditor agreement executed as part of the 2025 transactions that forbids minority lenders from seeking to subordinate the super HoldCo loans or senior OpCo RCF. Of course the excluded group has asked the court to void that agreement, meaning the debtors are relying on the agreement to block a suit to eliminate the same agreement.

The debtors also maintain that the minority group’s suit – an adversary proceeding filed in the bankruptcy court – is a violation of the automatic stay because the claims assert harm to the entire creditor body and are therefore derivative and belong to the estates. Naturally, the excluded lenders disagree.

Most importantly, the debtors and super HoldCo lenders assert that the CastleKnight group cannot challenge the transactions because it acquired its positions after the transactions closed – basically, that CastleKnight “came to the nuisance” (feel free to refer to your law school real property notes on that).

According to the debtors and super HoldCo lenders, CastleKnight “purchased its minority position in the Debtors’ capital structure subject to, and with full notice of, the very contractual provisions and transactions it now seeks to nullify,” solely to “manufacture leverage” and “disrupt an otherwise fully consensual restructuring” for hold-up value.

“Otherwise” is doing a helluva lot of work there – can companies that undertake not one but two skeevy prepetition LME-type transactions really expect now, in 2026, after Serta, to enjoy clean sailing through bankruptcy but for the machinations of vultures? Someone was going to sue over those transactions, and it might as well be CastleKnight, which unquestionably paid for the privilege.

But to the plan proponents, CastleKnight “is proceeding in bad faith and recycling” its “often-used strategy of pursuing baseless claims to dramatically increase estate expenses as means of extracting an undeserved recovery,” pointing to CastleKnight’s objections in the United Site Services and Lycra cases. Hoo-boy, do we have a new Invictus Global stirring up trouble?

Despite our decades of experience with chapter 11, we had no idea that the concepts of “deserved” and “undeserved” have any relevance to recoveries in bankruptcy – not to mention that the super HoldCo lenders do not, in CastleKnight’s view, “deserve” their allegedly ill-gotten gains under the plan.

Still, this was all just rhetoric, however overheated, until the debtors moved to designate – i.e., disregard – CastleKnight’s blocking vote to reject the plan on July 9. According to the debtors, CastleKnight’s vote should be tossed – effectively ensuring the class of OpCo lenders accepts the plan – because it was cast in bad faith to extract “holdup value” from the debtors and supporting lenders. To prove this, the debtors argue that CastleKnight prepetition behavior contradicts its arguments on the merits of the challenges to the transactions.

The debtors point out that CastleKnight built up a considerable position in Trinseo’s equity by April 2025, suggesting it doesn’t really believe the company was insolvent when the transactions took place. The debtors add that CastleKnight’s communications with Trinseo between September 2023 and February 2026 and its internal communications do not suggest CastleKnight intended to challenge the transactions, and note that CastleKnight also built up a position in the second lien notes created by the transactions it seeks to avoid.

CastleKnight only decided to challenge the transactions after it determined the debtors’ plan enterprise value implied a de minimis economic recovery on its notes and a 10 cent recovery on the OpCo term loans, according to the debtors. CastleKnight discovered this in February when it was provided with the debtors’ initial restructuring proposal as a member of a Gibson Dunn-advised steering committee, the debtors say, subtly hinting at abuse of confidential information.

Which: so what? CastleKnight took an economic and legal position, saw that position would not pay out as much as hoped, and took another one. This isn’t Soviet Russia, Danny.

Now, in fairness – and we hate being fair – section 1126(e) lets a court throw out a vote that wasn’t cast “in good faith,” and courts have used it to disregard the vote of a creditor that built a blocking position not to maximize its own recovery, but to grab a strategic prize it couldn’t get as a garden-variety creditor – that is, a competitor buying up claims to torpedo its adversary’s reorganization. It often comes down to proving the creditor is “wearing two hats” and not acting purely as a creditor.

LightSquared tried this against Ergen, and it comes up every so often in other cases (usually without a clear winner or loser). So no, the debtors aren’t conjuring designation out of thin air; “bad faith” voting is a real thing, and “I bought a blocking stake to extract something I’m not otherwise entitled to because I really want it for other reasons” is the textbook version of it.

But – and that’s a big but, we cannot lie – creditors are generally expressly allowed to vote in their own economic self-interest, aggressively, even after buying claims at a discount for the specific purpose of doing so. Pressing the value of loans (and related legal rights) that you paid real money for in litigation shouldn’t be “pure malice” or an “ulterior motive,” it’s just being a creditor.

Trinseo’s position actually reminds us of an argument Judge Lopez rejected in the Serta decision: that the excluded lenders had “unclean hands” and should not be allowed to recover damages for breach of the credit agreement via the uptier because they proposed their own drop-down LME first. Basically, the Serta participating lenders asserted that the excluded lenders shouldn’t be allowed to take one economic and legal position and then pursue a different one after the first didn’t work out.

The New, Common Sense Judge Lopez rejected that argument because, well, the company didn’t agree to that drop-down. A party cannot be deprived of the right to make an argument because it made a different argument previously, unless the first argument succeeded – that’s how judicial estoppel works. Until you win on something, you’re allowed to pivot. The idea that doing so could deprive a creditor of the right to vote on a plan is downright dangerous.

Hmmm, who is presiding over the Trinseo case? That’s right: our new BFF Judge Lopez.

What surprises us is that the Super HoldCo lenders openly support the debtors’ motion to designate CastleKnight’s votes despite the precedent it could create. Let’s assume they prevail, and Judge Lopez tosses CastleKnight’s vote on these grounds. What happens when one of the members of the senior creditor group – Oaktree, Angelo Gordon and Apollo – decides to change its position as a creditor in another case, and the debtor seeks to throw their vote in the trash, citing In re Trinseo?

This would be where we note that CastleKnight has become the fly in the ointment for many an LME (see above) and its “Aurelius Capital but make it 2026” vibes have not won many friends. But even so, folks, what goes around comes around.

Does the creditor that changed its investment strategy even get to object to its vote being designated? After all, they said vulture votes get dumped in Trinseo. Wouldn’t changing their position on this issue by itself qualify as bad behavior justifying designation? It’s a different case, sure, but the Super HoldCo lenders are using CastleKnight’s alleged obstructionist tactics in other cases – USS and Lycra – as justification for designating votes in Trinseo.

Of course there are counterarguments and defenses here, but virtually all of them point to the untenable idea of disenfranchising a creditor for taking different investment and legal positions as the situation develops.

This probably won’t get sorted out until the confirmation hearing on Aug. 12, but hopefully Judge Lopez will give the designation motion short shrift. We’ve enjoyed having him as a Friend of the Show. Come on the pod anytime, Your Honor!

Shopping for a Result

Judge Alfredo Perez’s monster QVC confirmation opinion deserves attention. We know the QVCG preferred shareholders (and some commentators) have beef with Judge Perez’s conclusions regarding solvency and the “independent” directors’ “negotiating” style – we ourselves prefer hardball to rolling over – but our main complaint is what we read as a weakening of the section 1123(a)(4) equal treatment “strict scrutiny” laid out by the Fifth Circuit in its landmark December 2024 Serta decision.

Recall that in Serta, the Fifth Circuit said bankruptcy courts cannot simply take a plan at face value when it provides ostensibly identical treatment to a particular class of creditors. In that case, the plan provided that all of the debtors’ lenders – those that participated in the challenged uptier and those that did not – would be indemnified by the debtors for any damages from litigation related to the transaction.

Former Judge Jones unsurprisingly had zero problem with that: under the plain terms of the plan, every lender got the same indemnification, so every lender was treated equally under section 1123(a)(4). Of course, the excluded lenders saw it differently: sure, every lender got an indemnification, but it was obviously a whole lot more valuable for those that participated in and got sued over the uptier than those who were excluded. In that sense, the participating lenders were treated more favorably than the excluded lenders, they argued.

The Fifth Circuit agreed. Although all members of Serta classes 3 and 4 received the indemnity, the panel explained, the value of that indemnity was dramatically greater for the participating lenders. “To class members like the [participating lenders], the indemnity was potentially worth millions or even tens of millions of dollars,” but to other class members “that had no involvement with the uptier, the indemnity was worth little or even nothing,” the panel pointed out.

The Serta decision created an obvious problem for Judge Perez in QVC. The preferred shareholder group opposing confirmation argued the plan violated section 1123(a)(4) because it provided releases for all preferred shareholders, including some that did not receive the allegedly avoidable dividends, which the settlement would leave undisturbed.

(The preferred group we are talking about largely includes funds and financial institutions, but a whole other set of retail holders is very active online despite the OTC page reading “Warning! This company is in bankruptcy!”)

We put on the glasses we wear to work on those Highlights Magazine “What is Wrong in This Picture” puzzles every month and stared thoughtfully for a while, but damned if we couldn’t pick out any legally significant difference between a class indemnification that is only valuable to those who might get sued for breach of contract (Serta) and a class release that is only valuable to those who might get sued to claw back fraudulent transfers (QVC).

But Judge Perez decided comparing the QVC plan’s releases to the Serta plan’s indemnification was “apples to oranges” because the QVC preferreds were getting no “distribution” under the plan and were entitled to nothing due to the company’s valuation. The judge then turns to whether the releases change this calculus, and has to reckon with Serta’s conclusion that a release can be very valuable to some and valueless to others.

Does Judge Perez really think that getting a release is not “value” distributed under a plan? Hey, he says he’s just following the Fifth Circuit’s “review of caselaw” in Serta, which “focused on the payment of value and the tendering of consideration in exchange for that value as part of a settlement.” Again: are releases not “value” or “consideration” for section 1123(a)(4) purposes?

Not to Judge Perez! According to him, “an indemnity has ‘make-whole’ characteristics which confer qualitatively different forms of value on recipients than a release.” Well, releases are different than indemnities, we can’t deny that. Maybe that would make a difference if some preferred shareholders were receiving releases and others indemnities – that would definitely violate section 1123(a)(4).

But that is not what is happening. All of the preferred shareholders are receiving releases, and the question under Serta is whether the difference in value between the releases for those who might get sued and the releases for those who won’t require the debtors to give additional value to those who wouldn’t get sued to make up the difference.

Instead of actually undertaking that analysis – which could only end with the conclusion that the plan violated section 1123(a)(4) under Serta by giving more value to class members that might get sued than those that won’t – Judge Perez used the differences between indemnities and releases to disregard the Serta rule entirely. Because Serta involved an indemnity, it only applies to plans that provide value to a class in the form of an indemnity, Judge Perez suggests – and the case has no relevance to whether a plan that provides value in the form of releases violates section 1123(a)(4).

Judge Perez tries to bolster this creative thinking by pointing out that the preferred shareholders did not give “any consideration in exchange for their treatment” – for example, the releases – under the plan settlement. Of course, that’s completely irrelevant – section 1123(a)(4) requires that a plan provide the same treatment to every member of a class, irrespective of what they gave up to get that treatment. Lenders who pay full price for their debt – and thus give up more value for their plan distributions – don’t get bigger distributions.

As to whether there was actual consideration exchanged, this isn’t a traditional contract and while the preferred shareholders might have been wildly out of the money under the judge’s reading of the facts, that doesn’t replace the reality that their interests in the company were canceled in exchange for the releases.

Look, we get it – Judge Perez probably thought the plan was fair and equitable, and wanted to confirm it and get the debtors out of chapter 11 – and this somewhat technical section 11234(a)(4) argument had to be disposed of somehow to get there. Maybe the end result is the best outcome (don’t ask the preferred shareholders!), but again: bankruptcy judges demand to be admired and lauded as real judges that apply the law, not free-roaming arbiters equity.

Well, they want to do both, but that’s not kosher under, you know, the Constitution. It will sure be interesting to see how the rampaging Fifth Circuit addresses this; the preferred shareholders already filed an appeal, a motion to stay the confirmation decision and a motion to certify the appeal for direct review by the Fifth Circuit is doubtless in the cards. BAH GAWD IS THAT JUDGE ANDREW OLDHAM’S MUSIC?