Del Monte Minority Lender Group Sues Majority Group, Says Non-Pro-Rata DIP Rollup Breached ‘Sacred Right’ to Pro Rata Sharing in Prepetition Credit Agreement

Relevant Document:
Complaint

On Jan. 23, a group of minority Del Monte Foods first-out lenders sued the ad hoc majority lender group in bankruptcy court for providing the debtors with a $412.5 million term DIP facility that includes a $247.5 million non-pro-rata rollup of the majority group’s prepetition loans. According to the minority lenders, the non-pro-rata DIP rollup breached the pro rata sharing provision in section 2.17 of the August 2024 drop-down liability management exercise credit agreement.

The suit is the first challenge to a non-pro-rata DIP rollup since Judge Craig T. Goldblatt recognized the viability of such claims in his November 2024 American Tire ruling; in that case, the majority group abandoned the proposed non-pro-rata rollup to avoid litigation.

The Del Monte minority group, which claims to hold 5.92% of the loans, objected to exclusion from the rollup at the first day hearing in July 2025; the final DIP order preserved the minority group’s right to sue the majority.

At the final DIP hearing in August, counsel for the minority lender group expressed hope that the debtors’ sale process would yield third-party bids sufficient to take out the first lien debt and moot the group’s claims related to the rollup. However, on Jan. 15, the debtors announced winning bids that would not be sufficient to pay off the first lien debt.

A different group of lenders that did not participate in the drop-down brought a prepetition suit challenging the transaction in the Delaware Chancery Court in October 2024. That litigation settled in April 2025 after trial but before a decision. The official committee of unsecured creditors initially hinted at avoidance claims related to the drop-down but reached a plan settlement with the debtors and majority group in December 2025.

According to the minority group, section 2.17 of the credit agreement provides that if a lender receives payment or another reduction of a proportion of its loans “greater than the proportion received by any other Lender,” that lender must “apply a portion of such payment to purchase participations” in the other lenders’ loans “so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them.”

“Notwithstanding the fact that a significant portion of the indebtedness owed to the Defendants pursuant to the First Out Term Loan was reduced in connection with the Roll-Up Loans and entry of the Final DIP Order,” the minority group alleges, “the Plaintiffs have received no participation interests, compensation or other consideration on account of their portion of the First Out Term Loan as required by the Sharing Provision.”

According to the minority group, under section 10.5 of the credit agreement their right to pro rata payment under section 2.17 is a “sacred right” that cannot be amended without the consent of each lender that would be adversely affected by the amendment – and the minority lenders did not consent to any amendment of the pro rata sharing provision to allow for the non-pro-rata rollup.

The majority group “breached the Super-Senior Credit Facility when the Roll-Up Loans were approved by converting a portion of the First Out Term Loan into superpriority Roll-Up Loans, thus reducing Defendants’ pre-petition First Out Term Loan indebtedness, without abiding by the express terms of the Sharing Provision” in violation of the minority group’s sacred rights, the minority group asserts.

The minority group alternatively contends that even if the non-pro-rata DIP rollup did not breach the express terms of the credit agreement, it breached the implied covenant of good faith and fair dealing. The non-pro-rata rollup “violated the spirit of the Super-Senior Credit Facility,” the minority group argues, because “it was clearly the intention of the parties” that all lenders would share in any reduction of their loans “in proportion to the total amounts due to them.”