One Year After Their Liability Management Exercises, AMC and Del Monte Find Themselves in Different Places

A year later, AMC’s credit profile has improved, even with its substantial debt burden, as its extended maturity wall provided it with the runway needed to capitalize on the post-pandemic box office recovery that, until this year, had been sluggish. However, last month Del Monte filed for bankruptcy as it once again required a capital injection to fund its pack season. Del Monte provides yet another example of a company filing for bankruptcy after completing a drop-down transaction, as previously analyzed by Octus.

In addition to occurring around the same time, the AMC and Del Monte liability management transactions each involved asset drop-downs, non-pro-rata exchanges and lawsuits filed by certain excluded creditors.

However, Del Monte’s liability management exercise involved the injection of new money, with substantially all of its assets being dropped down into an unsub, whereas AMC did not raise any new money with its LME and only dropped down assets generating 45% of trailing 12-month adjusted EBITDA. The Del Monte LME involved only one security, its term loan, while AMC’s 2024 LME involved substantially all first lien term lenders and certain second lien noteholders, while all first lien noteholders and the remaining second lien noteholders were excluded.
 

A summary of each company’s pre- and post-deal credit metrics is shown below:
 

Octus will be hosting a webinar to discuss these two transactions in detail on Sept. 10 at 10 a.m. ET. To register for the webinar, please click HERE.

AMC took advantage of expansive value leakage and debt incurrence capacity under the excluded first lien notes’ debt documents to effectuate its transaction and did not require a non-pro-rata exploit, as the transaction was pro rata as to the first lien term loans. Meanwhile, the Del Monte transaction exploited a loophole to effectuate its value leakage and used the open market purchase exception mechanic to create its non-pro-rata treatment. More information on these specific transactions can be found on Credit Cloud HERE.

Litigation over the Del Monte transaction focused on whether the intermediate drop-down transferee qualified as a “Credit Party” under the credit agreement. If so, then the transaction might have run afoul of restricted payment covenants. Thanks to an interesting procedural maneuver by the excluded lenders – filing a Delaware section 225 disputed director election proceeding – the case moved at tremendous speed, with a two-day trial completed in February; however, the parties settled before the Chancery Court could weigh in.

After settling the litigation and purchasing back the excluded lenders’ loans at par and paying an additional $20 million to the excluded lenders, however, the company ended up in chapter 11, with the participating lenders set to take over. The official committee of unsecured creditors has hinted at a preference suit to avoid the $20 million payment.

The AMC litigation was also unusual, in that the excluded noteholders focused their argument on the intercreditor agreement rather than the indenture. The parties spilled substantial ink on an incredibly arcane but crucial question: whether the exchange of existing notes for new debt at the drop-down transferee entity “discharged” the notes (and eliminated the intercreditor agreement) or “refinanced” them (whereby the intercreditor agreement remained in effect). Unfortunately for fans of arcane legal arguments, the parties also settled – though a chapter 11 epilogue seems unlikely thanks to AMC’s magical capital-raising powers.

A timeline of the AMC and Del Monte transactions and their corresponding litigation is illustrated below:
 

Del Monte Foods’ LME Driven by New-Money Needs

Faced with persistent headwinds and limited borrowing capacity under its ABL facility ahead of its pack season, Del Monte Foods in August 2024 announced that it had completed a liability management transaction raising $240 million of new money through a drop-down of substantially all its assets into a newly created unrestricted subsidiary called Del Monte Foods Corp. II, or DMFC.
 

Ad hoc group lenders, holding 57% of the company’s term loan, were offered the opportunity to provide new money in the form of new first-out loans and to exchange their existing holdings at par into new second-out loans. Non-ad-hoc group lenders were offered the opportunity to exchange 30.5% of their term loans at par into new second-out loans, but only if they agreed to provide new money in the form of new first-out loans. The remaining non-ad-hoc group loans were exchanged into new third-out loans.

Lenders holding approximately 15% of the term loans declined to participate in the transaction, filing litigation in October 2024 that was eventually resolved in April 2025 through a settlement in which the company incurred $122 million of new incremental first out loans, provided by first-out term lenders, with proceeds used to repay the litigants’ term loans at par plus professional fees.

The capital injection from the 2024 LME proved to be a short-term fix, much as Octus anticipated, leading the company to once again seek additional capital in 2025. In July, the company filed for chapter 11 bankruptcy protection with a plan from a group of its lenders that contemplated a credit bid of over $575 million, a rollup ABL facility and a $412.5 million term DIP facility. The DIP term loan comprises $165 million of new money, which was made available for all first-out term lenders to participate, and $247.5 million of rolled-up first-out loans from those participating lenders.

Ad hoc group members and new-money providers from the initial 2024 LME were offered the opportunity to provide new money as part of the April litigation settlement and once again as part of the July DIP facility, all in service of receiving a slice of post-reorg equity, unless a third party trumps the proposed credit bid.

Existing lenders that participated in the 2024 LME but did not provide new money are slated to be wiped out in the company’s bankruptcy plan, absent a much higher competing bid. Meanwhile, the 2024 LME holdouts that filed litigation were paid out and were reimbursed for their professional fees in April, and they appear to have made out better than any of the other existing term lenders. The term loan traded at about 75 cents on the dollar prior to the 2024 LME.

AMC Entertainment’s LME Left Behind 1L Noteholders

Amid a sluggish post-pandemic box office recovery and facing nearly $3 billion of debt maturing before the end of 2026, AMC Entertainment announced a liability management transaction in July 2024 that extended its maturity wall by several years. The refinancing was facilitated through a drop-down of certain valuable domestic assets into a newly formed unrestricted subsidiary called Muvico. Participating first lien term lenders got to exchange into new first lien Muvico debt, which also benefited from a guarantee from original borrower AMC Entertainment Holdings, at par, while participating second lien noteholders got to exchange into a mix of first and second lien Muvico debt at par.
 

Holders of AMC’s 7.5% first lien notes due 2029 were left out of the transaction and had valuable assets moved farther away from them. They subsequently filed a lawsuit against the company in September 2024, which was resolved in July 2025 through a settlement in which an ad hoc group of 7.5% noteholders agreed to provide new money to AMC and in return were able to exchange their notes for new third-priority debt at Muvico guaranteed by AMC Entertainment Holdings at par.

Holders of the second lien bonds who were excluded from the 2024 LME ultimately received par for their holdings, as the company used the new money from the settlement to pay all of AMC’s remaining debt due through 2026. The bonds traded at about 90 cents on the dollar in the weeks leading up to the 2024 LME.

The Del Monte Black Hole

The Del Monte dropdown was controversial for several reasons, but primarily, in our opinion, because it involved a drop-down of virtually all of the company’s assets to an unrestricted subsidiary, which resulted in existing lenders losing all of their collateral. The transaction is also a rare example of a “consensual” LME (i.e., a priming exchange with existing lenders) where no amendment was made to the existing documents.

The mechanics of the drop-down transaction – including how it was permitted under the existing credit agreement – are illustrated below.
 

Like J.Crew, but Worse

Similar to J.Crew’s 2016 dropdown transaction, Del Monte’s drop-down was structured as a two-step asset transfer, where assets were first contributed to a nonguarantor restricted subsidiary before being sent to the unrestricted subsidiary. The transaction was structured this way to exploit a trapdoor-style basket, similar to the one in J.Crew’s credit agreement, which allowed permitted investments in nonguarantor restricted subsidiaries to be passed on to unrestricted subsidiaries on an uncapped basis.

While in J.Crew, the “trapdoor basket” was paired with a $150 million capped nonguarantor restricted subsidiary investment basket and a separate $100 million unrestricted subsidiary investment basket allowing the company to move $250 million of trademarks into an unrestricted subsidiary, in Del Monte, the trapdoor basket was paired with an uncapped nonguarantor restricted subsidiary investment basket allowing the movement of the entire business into an unrestricted subsidiary.

A comparison of the J.Crew and Del Monte drop-downs, including the relevant baskets used, is below.
 

No Amendment, No Sacred Right

Another notable aspect of the Del Monte dropdown transaction was its non-pro-rata exchange mechanic (via the now-defunct “open market purchase” exception), which involved more than a majority of the company’s existing lenders but no amendment to the existing debt documents. In Del Monte’s case, the decision to eschew an amendment was presumably made in order to avoid a direct violation of the credit agreement’s sacred rights.

Most broadly syndicated loan agreements give the borrower and the majority lenders (also known as the “Required Lenders”) significant latitude to amend terms. Sacred rights are the exception to this general rule: They cannot be amended with simple majority consent and often cover fundamental matters such as the timely payment of interest and principal and the release of all or substantially all of the collateral, or the AOSA collateral sacred right.

Sacred rights, however, protect lenders from amendments only, not from all transactions that affect the protected right. Accordingly, an AOSA collateral sacred right is typically implicated only if an amendment is involved, but a drop-down that results in an AOSA collateral release will not violate the right so long as it complies with the unamended credit agreement.

AMC LME Highlights Importance of Intercreditor Agreements

In AMC, the primary victims of the transaction’s non-pro-rata treatment of existing creditors were the holders of the first lien notes due 2029, which were excluded from the initial transaction entirely. This had two important implications for the transaction structure.

First, by excluding the first lien notes, their indenture was left outstanding and unamended, meaning all elements of the LME needed to comply with the first lien indenture’s negative covenants. Ideally (for the borrower), a consensual LME involves obtaining majority consents from all outstanding tranches of debt to amend existing documents and maximize flexibility in executing the transaction. In AMC’s case, the company and its lenders chose to trade that flexibility for better in-group economics siphoned from the first lien noteholders.

Second, the transaction highlights the limits of intercreditor arrangements and the importance of restricted debt payment covenants.

Because the first lien notes were governed by an indenture separate from the debt documents that governed the other participating creditors, the indenture provided AMC’s first lien noteholders with no mechanism for pro rata treatment on account of voluntary prepayments or exchanges vis-a-vis the other participating creditors (i.e., the first lien term lenders). Instead, the relationship between the first lien noteholders and the other participating creditors (including the first lien term lenders and second lien noteholders) was primarily governed by intercreditor agreements, which are frequently not disclosed even by publicly listed companies.

In addition, the first lien notes’ restricted debt payment, or RDP, covenant restricted only prepayments of payment-subordinated debt, not of junior lien or unsecured debt; a more restrictive RDP covenant could have given AMC’s first lien noteholders more leverage against the July 2024 transaction.

Different Litigation Paths, Different Results

Del Monte Excluded Lenders’ Novel Approach Yields Results

The lenders excluded from the Del Monte drop-down took a novel litigation approach. Instead of suing the company, participating lenders and the agent for breach of the credit agreement and tortious interference in a New York state court, as in most LME challenges (see Boardriders, TriMark, STG Logistics, Mitel, Serta, Robertshaw, Hunkemöller, Lions Gate, DISH DBS and Wesco/Incora), the Del Monte excluded lenders – now holding a majority of the left-behind loans – appointed Black Diamond as the new agent (replacing Goldman Sachs) and instructed it to call a default and replace the company’s board with lender nominees by voting pledged stock.

Black Diamond then brought a summary proceeding in the Delaware Chancery Court to confirm the authority of the new directors under section 225 of the Delaware General Corporation Law, which provides for a special declaratory judgment proceeding to resolve contested board of director elections for Delaware companies.

Presumably, the excluded lenders hoped to move the litigation faster than the New York breach of contract actions, and if so, they were absolutely correct. For example, the Boardriders suit took about nine months from the filing of the complaint to the decision on the motion to dismiss (with the possibility of years of litigation to follow), while the Delaware court held a full two-day trial on the excluded lenders’ breach claims (necessary to determine whether the new directors were validly appointed after a default) about six months after the excluded lenders filed suit.

Presumably, if the agent prevailed in the Delaware action, the excluded lenders would not only control the company but could also bring their own “plenary” suit for damages against the company, participating lenders and Goldman Sachs. In a footnote to the section 225 complaint, the agent notes that “[t]his action and the relief sought herein are in addition to, and are not exhaustive of, claims and remedies” the agent “and various non-party lenders” – the excluded lenders – “may pursue against the Company, its affiliates and various other non-parties in a plenary action.”

In their section 225 complaint, the agent alleged that the transaction “purported to transform – without their consent – the remaining 1L Term Loan lenders from first-lien lenders with substantially all of DMFI’s assets as collateral into holders of instruments secured only by the stock of the Company, DM Intermediate, and the Parent Guarantors, standing in line behind approximately $1.2 billion of debt secured by assets that once had secured their loans.”

The Chancery Court quickly entered a status quo order prohibiting the existing directors, officers and employees from taking actions that would effect major changes to the company’s or its subsidiaries’ structure, debt, securities, ownership, control, assets or legal obligations. Here’s another possible advantage of the Delaware proceeding: Because a section 225 action only resolves questions regarding the identity of the directors and can move much more quickly than a New York breach of contract action, an order halting potential corporate transactions while the proceeding is pending is considerably more palatable to a judge.

On Feb. 10, three days before the start of trial, the parties filed pretrial briefs laying out their positions in detail. Black Diamond, as agent, asserted that the transaction “accomplished very little” for the company, apart from increasing net debt and incurring more than $25 million in fees. The restructuring “purported to destroy the benefits of first-lien status for non-participating lenders and harm the already struggling company,” according to the agent.

The agent and the company agreed on the critical breach question: whether DM Intermediate was a “Credit Party” prohibited from investing in non-Credit Parties by transferring all of its assets. The defendants maintained that DM Intermediate was not a Credit Party because at the time of the transaction it had not guaranteed the loans, and the credit agreement does not require Del Monte to cause new subsidiaries to become guarantors until 60 days after formation. The transactions took place less than 60 days after DM Intermediate was formed, when it was not yet a guarantor.

The defendants also argued that DM Intermediate was not a Credit Party because it was not a “wholly-owned Domestic Subsidiary” of Del Monte Foods Holdings Ltd., or Holdings, at the time of the transaction. When the transaction occurred, the defendants explained, DM Intermediate had issued 100 shares of common stock to Holdings affiliate Del Monte Foods Inc., or DMFI, and 100 shares of preferred stock to Philippines-based Del Monte Pacific Ltd., or DMPL. Because of DMPL’s preferred stock, the defendants asserted, DM Intermediate was not a wholly owned domestic subsidiary of Holdings.

The agent responded that DM Intermediate was a Credit Party because “DMFI owns 100% of the common/voting stock of DM Intermediate.” According to the agent, “the preferred, non-voting stock” held by DMPL “is irrelevant to whether DM Intermediate is a wholly-owned subsidiary of Holdings” because the term “wholly-owned” is “commonly understood” to refer to “common/voting stock.”

Black Diamond warned that allowing Del Monte to “create new subsidiaries, issue preferred stock to its ultimate parent, then transfer away all the collateral securing the Term Loan” would make “a mockery of the notion of security.” “Under [the] Defendants’ logic, they could have done all of that one day after the Term Loan was issued, such that it was never really secured at all,” the agent suggests. We hope you are taking notes.

The parties also discussed the “open market purchase” nature of the drop-down exchange – but it seemed to be treated as a lower priority issue than the Credit Party argument. Both parties provided expert testimony at trial on the meaning of “open market purchase,” but neither side seemed to press the issue – possibly because of the Fifth Circuit’s Serta Simmons decision on the meaning of the term.

On day one of trial, Feb. 13, Black Diamond Managing Director Jared Twitchell testified that he learned about the formation of an ad hoc group in spring of 2024, and reached out to Gibson Dunn, the ad hoc group’s counsel, to get more information. He said he wanted Gibson Dunn to understand that Black Diamond was interested in joining the ad hoc group, though he acknowledged that he did not actually ask to join. The conversation was “not helpful,” according to Twitchell, and he was told that non-ad-hoc group lenders could not participate in the transaction on a pro rata basis.

The company’s CEO testified that the company needed new capital, that the transaction was its best option and that the company did not care whether the transaction was pro rata. A PJT witness also testified that it was agnostic about who participated, suggesting that the decision on who to include was made by the ad hoc group.

Very little of the testimony during the two days of trial touched on what both parties seemed to see as the salient issue: whether DM Intermediate was a Credit Party prohibited from “investing” all of its assets in the new financing entity. That issue was heavily debated in post-trial briefs filed April 4 – though the arguments generally echoed the pretrial briefs.

Closing arguments were set to begin April 9, but alas: That same day, Del Monte Pacific announced that the parties had reached a settlement. Specifically, the company agreed to pay the excluded lenders represented by Black Diamond $102 million to purchase their loans and $20 million for their expenses, funded by a new $122 million incremental facility from participating lenders. Del Monte Pacific unsurprisingly declined to make a $45 million contribution to the settlement – as by this time, it may have been obvious that the company was likely going to require a more fulsome restructuring.

On July 1, the company filed chapter 11 in New Jersey with a plan to hand itself over to the participating lenders, who agreed to provide $165.5 million in new-money DIP financing to get through the 2025 pack season and $125 million in exit financing. To our disappointment, the filing did not mention any possible suit to claw back a $20 million payment for the excluded lenders’ fees, even though it appears the bankruptcy was filed less than 90 days after the deal.

At this point, the participating lenders might have been jealous of the excluded lenders, who by virtue of not being part of the “in crowd” were no longer tied to a failing company or providing more financing to keep it afloat. A group of minority lenders actually objected to the DIP and proposed fees; Judge Michael Kaplan predictably overruled them.

On Aug. 12, Judge Kaplan granted final DIP approval and set up a sale process to test the participating lenders’ credit bid, which seems unlikely, in our opinion, to unearth new bidders at more than the $575 million required to cover secured debt (as suggested by the lengthy marketing period – the bid deadline is Nov. 4). On the plus side, counsel for the UCC hinted at a potential suit to recover the $20 million settlement payment.

If the settlement payment is avoided – a distinct possibility, since litigation settlements generally do not fall into any of the usual defenses to preference avoidance – the excluded lenders would end up with an unsecured claim for their $20 million in fees. However, even assuming the fee settlement payment is avoided and the resulting unsecured claim is worthless, the excluded lenders would end up recovering approximately 80% of their total claim when professional fees are included.

AMC’s Lenders Take a More Typical Approach

Unlike the excluded lenders in Del Monte, the AMC left-behind noteholders took a more typical litigation approach, filing a complaint for breach of the credit agreement in a New York state court in September 2024.

But there was an unusual wrinkle: Rather than focusing on the indenture, the excluded first lien noteholders emphasized that the drop-down breached an intercreditor agreement between first lien and second lien noteholders. According to the excluded noteholders, the intercreditor agreement requires that liens on junior obligations such as the second lien notes “must remain junior and subordinated to” the liens securing senior obligations. The drop-down “would yield the opposite result” by elevating holders of the second lien notes “to the same priority” as first lien noteholders, the excluded noteholders asserted.

The excluded noteholders added that the intercreditor agreement prevents the granting of new liens “securing only the Junior Obligations and not also the Senior Obligations.” AMC violated this provision, the excluded noteholders argued, by granting a lien on the transferred collateral to holders of the exchangeable notes and holders of the new term loans without also granting a senior lien to first lien noteholders.

In November 2024, the company responded with a motion to dismiss. According to AMC, the transaction would help it “achieve a successful recovery from the unprecedented challenges,” including the pandemic and recent industry strikes, “for the benefit of all of its stakeholders.” The company more convincingly argued that the plaintiffs failed to allege damages because the first lien notes traded “materially higher” after the transaction was announced.

With respect to the legal issues, AMC claimed the intercreditor agreement “ceased to be effective” before the exchangeable notes were issued because the second lien noteholders “agreed to release all collateral securing those notes” before AMC commenced the transaction. Accordingly, the second lien noteholders “no longer shared any collateral with” term loan lenders or first lien noteholders, and this rendered the intercreditor agreement ineffective under its “express terms.”

AMC also maintained that section 8.03(b) of the intercreditor agreement, which requires that a representative from each debt class agree to terminate or waive its provisions, does not apply because the entire agreement was obliterated under section 8.02, which provides that the agreement disappears when the applicable notes are discharged. The agreement “ceased to be effective the moment the holders of the Second Lien Notes released the collateral securing those notes,” effectively discharging them, according to AMC.

Even if the intercreditor agreement remains in effect, AMC alternatively argued, the excluded noteholders “failed to plead an actionable breach” because the exchangeable notes “are an entirely new security” that has “no relation to the Intercreditor Agreement.” The company emphasizes that the exchangeable noteholders signed on “to an entirely different intercreditor agreement – the existing First Lien Intercreditor Agreement” (emphasis in the original) executed as part of the transaction.

The intercreditor agreement relied on by the excluded noteholders “on its face only governed the relationship among the holders of first-lien debt and second lien debt, and not, for example, additional first-lien debt in a scenario where second lien debt no longer exists,” according to AMC.

Finally, AMC maintained that the first lien notes indenture, which the intercreditor agreement incorporates by reference, “expressly allowed AMC to do precisely what it did.” According to AMC, the first lien notes indenture allows it to “issue first and second lien debt, as well as different types of debt, for myriad purposes, including paying off the Second Lien Notes.”

On Feb. 18, the excluded noteholders responded that the intercreditor agreement remains in effect because the transaction was a “refinancing” that did not “discharge” the second lien notes under section 8.02. Section 1.01 of the intercreditor agreement “broadly” defines a refinancing event in “respect of any Indebtedness” to include “alternative financing arrangements, in exchange or replacement for such indebtedness.” AMC’s public statements and filings referred to the transaction as a refinancing, the excluded noteholders pointed out.

The intercreditor agreement “shall continue to be effective until the Discharge of Senior Obligations shall have occurred” (emphasis added), the excluded noteholders said, and since the second lien notes were refinanced and not discharged, the intercreditor agreement remains in effect.

Additionally, the excluded noteholders noted that the term “junior notes indenture” in the intercreditor agreement “expressly includes” (emphasis in original) existing debt and “any obligations that ‘Refinance’ them.” Because the “Exchangeable Notes Indenture immediately became a Refinanced Junior Notes Indenture,” the collateral securing the exchangeable notes also became subject to the intercreditor agreement, the excluded noteholders concluded.

As with Del Monte, we are unlikely to get an answer to these questions. Oral argument on the motion to dismiss was scheduled for April 7, but on March 25 the parties agreed to push it all the way to June 26, suggesting a settlement was afoot – which was confirmed by Octus reporting on June 12. On June 20 the state court further continued oral argument to Aug. 26 at the parties’ request. On July 1, AMC announced the transaction support agreement for a new transaction that would resolve the litigation, which closed on July 25.