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Lenders Sue Firms Including Oaktree and BlackRock Over ‘Cannibalistic’ Contract Breach
A group of lenders including Audax Group and Golub Capital Partners filed suit against their fellow credit-providers, citing concerns that they could be wiped out in a bankruptcy.
A dispute between a foodservice supplier’s lenders including BlackRock, Audax Group, and Oaktree Capital Management has come to a head in the New York State Supreme Court.
Late Friday, a group of lenders to TriMark USA, which provides equipment to the foodservice industry, sued their fellow private credit providers, alleging that they improperly amended the credit agreement.
TriMark has been struggling during the pandemic, as its customers — restaurants — had to close. The lenders changed the credit agreement in a bid to give the company more liquidity.
Friday’s lawsuit claims that these changes devalued certain lenders’ debt and makes it less likely that they’ll get repaid if TriMark defaults. “This breach-of-contract case arises from a cannibalistic assault by one group of lenders in a syndicate against another,” the lawsuit said.
The plaintiffs include Audax, BlueMountain Capital Management, Golub Capital Partners, Intermediate Capital Group, New Mountain Finance Corp., Shenkman Capital Management, York CLO Managed Holdings, and Z Capital Credit Partners.
“Our clients are very unhappy about having to sue to protect their rights here,” said Jennifer Selendy, managing partner at Selendy and Gay, who is representing the plaintiffs. “They feel like the industry has worked really well for a long time. This is really a sign of how desperate people are in this market.”
The list of asset managers and owners they are suing is long. Two of the defendants are TriMark’s private equity owners Centerbridge Partners and Blackstone, which holds a minority stake in the company. “Blackstone is a minority investor in the company and these claims are wholly without merit,” a spokesperson for the firm said via email. A spokesperson for Centerbridge declined to comment.
The plaintiffs are also suing BlackRock, Ares Management, Oaktree, Sculptor Capital Management, Australia’s Future Fund, and the Canadian construction industry pension plan, among several others. BlackRock, Oaktree, Sculptor, and CCQ declined to comment. Ares and the Future Fund did not return emails seeking comment by press time.
In late spring, a group of TriMark’s lenders allegedly formed a committee to work with TriMark on determining whether it needed additional liquidity to “weather the stress caused by the pandemic and, if needed, to explore potential pro-rata financing options,” the lawsuit said.
The result was a newly negotiated deal, under which new classes of lenders were created by amending the initial lending agreement, according to the suit.
The debt for these lenders was allegedly secured by the same collateral that secured TriMark’s first-lien debt. However, the two new classes of lenders would have priority claims on TriMark’s assets if the company went bankrupt, the lawsuit said.
A source familiar with the deal said the majority of the lenders approved the new credit agreement. “The bottom line is that the contract plainly allows for the execution of this transaction,” they said by phone.
The plaintiffs, however, allege that they were not given the opportunity to exchange their first-lien debt for the new debt.
Soon after the debt renegotiation, Standard and Poor changed its recovery rating for the first-lien debt. According to the lawsuit, the first lien’s debt was initially projected to recover 50 percent to 70 percent of its assets in bankruptcy. After the new agreement, that recovery rating dropped, with S&P projecting a recovery of between 0 percent and 10 percent on the dollar, the suit said.
The lenders who filed the lawsuit claim that their fellow lenders engaged in a breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with contract, and violations of New York Uniform Voidable Transaction Act.
They are asking the court to void the amendments to the loan agreement, rule the transaction invalid, and award damages, costs, and attorneys’ fees.
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The lawsuit follows similar litigation filed by UMB Bank against Citigroup and Revlon in August. In that case, Citi and Revlon allegedly renegotiated deal terms, moving collateral from one lender to a higher priority one.
According to Selendy, this isn’t a trend for the industry at large, but instead, “a few bad apples who are trying to substitute investment returns for some cheap attacks on their fellow lenders.”
“It could potentially be bad for the broader markets if this is what happens when you don’t like your contract,” she said by phone. “It's not going to be good for lending. It's not going to be good for the companies that need capital.”