Over the past several years, unitranche facilities have become increasingly prevalent. This growth has been driven by the ever-growing class of private credit and direct lenders who initially developed the unitranche facility structure, along with traditional bank lenders now joining this market. The unitranche structure has several advantages, including typically quicker execution for the parties involved and in some cases a lower cost of capital to the borrower.

Secured lenders are troubled at the recent news that a New York state court judge denied a preliminary injunction request filed in the Supreme Court of New York by a group of dissenting first-lien lenders, seeking to prevent a borrower, Serta Simmons, and certain first-lien consenting lenders from entering into a recapitalization transaction. In exchange for the purchase of the consenting lenders’ debt at a discount, the consenting lenders received new super-priority debt ranking ahead of the non-consenting lenders’ debt.

In a highly anticipated decision issued last Thursday (on December 19, 2019), the United States Court of Appeals for the Third Circuit held in In re Millennium Lab Holdings II, LLC that a bankruptcy court may constitutionally confirm a chapter 11 plan of reorganization that contains nonconsensual third-party releases. The court considered whether, pursuant to the United States Supreme Court’s decision in Stern v. Marshall, 564 U.S. 462 (2011), Article III of the United States Constitution prohibits a bankruptcy court from granting such releases.