Shut-Out Serta Lenders Win $161.5 Million Over Unequal 2020 Payout
The court ruled the $734 million rescue should have been shared equally, with six years of interest at New York's 9% rate.
Law, disrupted · Landmark Serta Judgment - An LME Short Course with Susheel KirpalaniOn July 7, 2026, lenders shut out of mattress maker Serta Simmons Bedding's June 2020 rescue won about $161.5 million from the lenders who got paid instead.
The award matters because it shows that a common promise in corporate loans, that all lenders be treated equally, can be worth hundreds of millions of dollars when a distressed company favors one group over another.
In June 2020, Serta paid out $734 million in new super senior loans to only about 53% of its term lenders, according to Susheel Kirpalani, the lawyer who represented the excluded lenders at trial. The other 47% got nothing. Kirpalani said the new money itself was unobjectionable, but the unequal, or nonratable, distribution was not. In bankruptcy, he noted, such a payout would always have to be shared equally.
Serta had defended the deal as an open market purchase, a term in the loan contract that allows debt to be bought back in the market. In January 2025, the Fifth Circuit Court of Appeals rejected that argument, ruling it was not an open market purchase. Kirpalani described the ruling as holding "there was no market at all" and calling it a private backroom deal. It sent the case back to Bankruptcy Judge Christopher Lopez in Texas to decide what part of the contract was breached and what the damages were.
Lopez found that a clause requiring ratable treatment had been breached. Under that clause, lenders who receive a disproportionate payment must buy pieces of the unpaid lenders' loans to even things out. Applied here, the $734 million should have been spread so every lender got roughly 39 to 40 cents on the dollar as of 2020, plus interest at New York's statutory rate of 9% a year, calculated as simple interest, until judgment.
Because six years had passed, interest made up a large part of the award. Kirpalani said full damages for all excluded lenders would have been $400 million. After settlements with about a third of the defendants in early July and a dispute over part of one client's loans, the judgment for his clients came to about $161.5 million.
Questions people ask
What is a term loan, and why is it hard to sell one in distress?
A term loan is a loan made by a group of banks or investment funds under one contract. Lenders can buy and sell their pieces to each other, but unlike stocks or bonds, there is no public exchange showing prices. That makes it hard to sell a large piece quickly in a crisis.
What is an uptier?
An uptier lets a struggling company borrow new money that jumps ahead of old debt in repayment priority. Lenders who provide the new cash typically get to exchange their old loans into that senior position, while lenders who are left out stay behind. The fight is over whether the contract allowed that unequal result.