Leslie's - Chapter 11 DIP Terms

DIP Terms

DIP Commitments

• The final order, entered Oct. 26, 2026, approves two superpriority facilities: a $90 million new-money term loan facility and an asset-based revolving facility of up to $225 million. The debtors filed Chapter 11 on Sept. 30, 2026, in the Southern District of Texas. The court overruled on the merits any objections that were not withdrawn or resolved.
• The $90 million term facility is available in two single draws:
  • $45 million on an interim basis, made available when the interim order was entered and funded through Jefferies Capital Services, LLC as fronting lender
  • $45 million on a final basis, available once conditions including entry of the final order are met, and funded by the fronting lender within one business day after the final order is entered
• Term loans that are repaid or prepaid may not be reborrowed. Principal may grow above $90 million through interest and premiums paid in kind.
• Availability under the ABL revolver is capped at the lesser of $225 million and the amount the DIP orders authorize. It is further limited to a line cap equal to the lesser of total commitments and the borrowing base, and remaining prepetition revolving loans count against that line cap. The facility includes a $25 million letter-of-credit sublimit and a $12.5 million swingline sublimit, both inside the $225 million. It refinances the prepetition ABL through the roll-up described below.
• The ABL could take effect only if the term facility was in full force and the debtors had received at least $45 million of interim term loan proceeds, net of fees and closing costs.
• Each term draw and each ABL borrowing requires, among other things, that the restructuring support agreement, or RSA, remain in full force and that all milestones then due have been satisfied, waived or extended. The RSA is between the debtors and consenting prepetition term lenders, and the ABL credit agreement dates it Sept. 30, 2026.

Roll-Up

• All outstanding prepetition ABL obligations roll into the DIP ABL in two steps:
  • Creeping roll-up, approved on entry of the interim order: all prepetition ABL bank product obligations and outstanding letters of credit were deemed exchanged for and issued under the DIP ABL. All cash, collections and proceeds of ABL priority collateral are applied dollar-for-dollar to reduce prepetition ABL obligations and deemed reborrowed as DIP ABL obligations.
  • Final roll-up, approved on entry of the final order: all remaining prepetition ABL obligations convert on a cashless basis into DIP ABL obligations.
• The order authorizes the rolled-up obligations solely as consideration for the prepetition ABL lenders' agreement to fund the DIP ABL, not as adequate protection. The court found that the prepetition ABL secured parties would not have consented to cash collateral use, and the DIP ABL lenders would not have lent, without the roll-up.
• The roll-up remains subject to the challenge provisions. If a challenge succeeds, the court may fashion any appropriate remedy, including as to the roll-up.
• Under the ABL credit agreement, the borrowers may not repay principal on DIP revolving loans until the prepetition ABL obligations are paid in full, and shortfall and remedy proceeds go first to permanently reduce prepetition obligations. The DIP ABL obligations remain "ABL Obligations" under the prepetition intercreditor agreement, and the refinancing does not count as a discharge of ABL obligations under it.

Equitization

• Under the DIP term credit agreement, the following may be converted into new common equity on the restructuring effective date, as described in the RSA's restructuring term sheet: up to $15 million of original DIP term loan principal, all capitalized PIK interest, all accrued and unpaid interest, and all backstop and upfront premium loans.

Borrower(s) / Guarantor(s)

• Leslie's Poolmart, Inc., as borrower under the term facility and parent borrower under the ABL, with LPM Manufacturing, Inc. and Cortz, Inc. as ABL subsidiary borrowers
• Leslie's, Inc. (f/k/a Leslie's Holdings, Inc.), as holdings, and the other debtors, as guarantors. The debtors are jointly and severally liable for all DIP obligations.

Agent / Lender(s)

• Term facility: Alter Domus (US) LLC, as administrative and collateral agent (also prepetition term loan agent). Jefferies Capital Services, LLC is fronting lender and initial DIP lender, and it assigns positions and premium loans to the backstop parties and participating lenders under a master consent to assignment.
• The term lender group is an ad hoc group of unaffiliated DIP lenders and prepetition term lenders. Its counsel is Akin Gump Strauss Hauer & Feld LLP and its investment banker is Houlihan Lokey Capital, Inc. Term DIP loans may be assigned to a prepetition term secured party, its affiliates or any other person only if the assignee is, or at the same time becomes, a consenting term lender under the RSA and otherwise complies with the RSA, and they may never be assigned to holdings, the borrower or their affiliates.
• Two term-side consent groups apply:
  • Required DIP term lenders: holders of more than 60.01% of term loans and unused commitments. Amendments that adversely affect the fronting lender also need its consent.
  • Required consenting term lenders: consenting term lenders holding at least 60.01% of the prepetition term loan claims held by all consenting term lenders. This group has consent rights over budgets, plans, competing financings, contract assumptions and other case matters.
• ABL facility: Bank of America, N.A., as administrative agent, collateral agent, issuing lender and swingline lender (also prepetition ABL agent). U.S. Bank National Association is co-collateral agent, and BofA Securities, Inc. and U.S. Bank are joint lead arrangers and joint bookrunners. Required lenders hold more than 50% of commitments. ABL positions may not be assigned to DIP term lenders, prepetition term lenders or their affiliates.

Prepetition Debt and Stipulations

• Prepetition ABL: at the petition date, not less than $50 million of revolving loans and approximately $11.1 million of issued, undrawn letters of credit were outstanding. The facility is a $250 million asset-based revolver under a credit agreement dated Oct. 16, 2012 (amended seven times through April 3, 2024), with Bank of America as administrative and collateral agent and U.S. Bank as co-collateral agent.
• Prepetition term loan: not less than $757 million was outstanding at the petition date under an $810 million facility. It is governed by an amended and restated credit agreement dated March 9, 2021, with Alter Domus as administrative and collateral agent.
• An amended and restated intercreditor agreement dated Aug. 16, 2016, splits the collateral. The ABL ranks first on ABL priority collateral and second on term priority collateral, and the term loan ranks first on term priority collateral and second on ABL priority collateral. The agreement stays in force and governs the two DIP facilities as between themselves.
• The debtors stipulate to the amount, validity, perfection, priority and non-avoidability of both prepetition facilities and their liens. They also stipulate that they hold no claims against the prepetition secured parties and waive any challenge. The stipulations bind the estates now and bind third parties subject to the challenge provisions.

Cash Collateral

• The debtors have final authority to use cash collateral, meaning all estate cash, deposits and cash equivalents that are prepetition collateral or its proceeds. Use is subject to the approved budget and permitted variances and continues:
  • until a termination event
  • during the notice period
  • after a termination event that is cured within the notice period
• The required lenders under both prepetition facilities consented, conditioned on entry of the final order. The debtors must keep their existing cash management system and may not open accounts that are not subject to the DIP liens. If a cash dominion event occurs under the ABL, the debtors must comply with the ABL credit agreement's cash management covenant.

Interest Rate

• Term facility: adjusted term SOFR + 6.50% (0.00% floor) or alternate base rate + 5.50%, paid in kind. Interest is capitalized into principal monthly in arrears on the last business day of each month starting Oct. 31, 2026, and is also payable at maturity. The alternate base rate is the highest of the federal funds effective rate + 0.50%, adjusted term SOFR + 1.00%, and the prime rate.
• Term Default Rate Increase: 2.00%, at the election of the required DIP term lenders, which may apply it retroactively to the date of default
• ABL facility: term SOFR + 3.25% or base rate + 2.25% (0% floor), payable monthly in arrears. The base rate is the highest of the federal funds rate + 0.50%, Bank of America's prime rate and term SOFR + 1.00%.
• ABL Default Rate Increase: 2.0%

Fees

• Term facility fees are paid to the fronting lender for the pro rata benefit of the DIP backstop parties and, for the upfront premium, the participating lenders:
  • Backstop Premium: 7.00% of term commitments held by the DIP backstop parties, fully earned at closing and paid in kind as additional term loans
  • Upfront Premium: 9.50% of the term loans the fronting lender funds at closing and at the final draw, earned and paid in kind as additional term loans on each funding date
  • Agency Fee: payable to Alter Domus under a separate agency fee letter
  • Fronting lender expenses: reimbursed under a fronting fee letter
• ABL facility:
  • Commitment Fee: 0.30% per annum on unused commitments, payable monthly in arrears
  • Letter of Credit Fee: the SOFR margin for standby letters of credit and 50% of the SOFR margin for commercial letters of credit, applied to the maximum amount available to be drawn
  • Fronting Fee: 0.125% per annum, payable to the issuing lender
  • Additional fees under a fee letter with Bank of America, fully earned when paid and nonrefundable
• The debtors pay the following professionals without retention or fee applications:
  • Seward & Kissel LLP, counsel to the DIP and prepetition term agent
  • Akin Gump, Houlihan Lokey, a specified consultant and local counsel to the term lender group
  • Morgan, Lewis & Bockius LLP, Bracewell LLP and FTI, counsel and financial advisor to the DIP and prepetition ABL agent
• Postpetition invoices may be in summary form and go to debtors' counsel, committee counsel and the U.S. Trustee for a 10-business-day review. Undisputed amounts are paid within five days after the review period ends. Fees incurred and unpaid before closing are paid at closing without review.

Maturity

• Term facility matures on the earliest of:
  • The scheduled maturity date, which the credit agreement attached to the final order leaves blank with a note that it is to be six months after closing. The required DIP term lenders may extend it to one or two months after the original date.
  • Substantial consummation, and no later than the effective date, of the RSA plan or any other confirmed plan
  • Acceleration
  • Dismissal of the cases or conversion of any case to Chapter 7
• ABL facility terminates on the earliest of:
  • A scheduled date, also left blank in the attached credit agreement with a note that it is to be the six-month anniversary of closing. It may be extended by one month up to three times with required lender consent.
  • The latest stated maturity of the term facility, including extensions
  • Acceleration or termination of the agreement
  • The effective date of a plan
  • A sale of all or substantially all assets, including under section 363 or 365
• Letters of credit expire seven days before the ABL's final maturity.

Prepayments

• Term facility: no voluntary prepayment before maturity. Mandatory prepayments carry no premium or penalty, and any lender may decline its share. They consist of:
  • 100% of net proceeds of a section 363 sale of all or substantially all assets, after funding the Carve Out, on receipt
  • 100% of net proceeds of other non-ordinary-course dispositions, insurance and condemnation recoveries and extraordinary receipts, within five business days. This applies only once such proceeds exceed $500,000 in a fiscal year and is subject to a reinvestment right in term priority collateral within 20 days or the period in the approved budget.
  • 100% of net proceeds of non-permitted debt, within two business days
• ABL facility: voluntary prepayment is allowed without premium or penalty. Mandatory prepayment applies whenever total exposure exceeds the line cap. It also applies to any cash held by holdings and its subsidiaries above $32.5 million (excluding a professional fee escrow), measured pro forma for each borrowing through the next business day. Staying under that cash cap is also a condition to each borrowing.

Use of Proceeds

• Working capital and general corporate purposes, including debtor professional fees consistent with the RSA
• Costs of administering the cases and obligations related to the Carve Out
• Prepetition claims, but only as the approved budget or the court permits
• Agency fees, agent and lender expenses, and adequate protection payments
• Other purposes in the approved budget; ABL proceeds also support letters of credit
• None of the DIP loans, collateral, cash collateral or the Carve Out may be used to:
  • investigate or challenge the DIP or prepetition obligations, liens or claims
  • bring claims against the secured parties
  • hinder the secured parties' enforcement
  • subordinate or recharacterize the DIP or prepetition obligations, or disallow or avoid their claims or liens
  • modify the secured parties' rights under the order or the loan documents without their consent
  • pay unbudgeted prepetition claims
  The bar extends to paying any person's professional fees for these actions, but defending against them is permitted.
• Investigation Budget Cap: $125,000 under the final order for committee fees to investigate, but not prosecute, a challenge; both DIP credit agreements state the cap at $75,000, and the final order governs inconsistencies with the DIP documents

Approved Budget

• The initial 13-week budget is attached to the final order and runs through the week ending Dec. 25. Before financing activity, it projects $156.9 million of total receipts, $166.6 million of operating disbursements and $88.1 million of non-operating disbursements.
• Weekly receipts go from $19.3 million in the week ending Oct. 2 to $7.8 million in the week ending Dec. 25. Non-operating disbursements are $23.5 million, $17.2 million, $15.5 million and $14.5 million in the first four weeks and $2.2 million in week five.
• Updated 13-week budgets are due every fourth Friday after the petition date. Term-side updates need approval of the required DIP term lenders in their sole discretion, and ABL-side updates need the ABL agent's approval. The final order conditions budget changes on approval of the ABL agent and the required consenting term lenders, with notice to the committee. The current budget stays in effect until an update is approved.

Permitted Variance

• Term facility: actual aggregate receipts may not fall more than 20% short of budget, and aggregate disbursements excluding professional fees may not exceed budget by more than 15%. Both are tested cumulatively over the initial budget's first four-week period, reported on the fifth Friday after the petition date, and over each rolling four-week period after that.
• ABL facility: total collections must be at least 80% of budget, and total disbursements excluding professional fees may be no more than 115% of budget. Both are tested on a cumulative rolling four-week basis each week, starting Oct. 24, 2026.
• Failing to meet the budget (subject to permitted variances) or the reporting requirements is an event of default under both facilities after any cure period.

Financial Covenants and Borrowing Base

• Minimum Liquidity: $25 million at the end of each calendar week under both facilities, measured as unrestricted cash plus ABL excess availability
• Minimum Excess Availability: $10 million at all times under the ABL
• The borrowing base consists of the sum of the following, less availability reserves:
  • 90% of eligible credit card receivables
  • 85% of eligible trade receivables, net of receivables reserves
  • The cost of eligible inventory, net of inventory reserves, times the monthly inventory advance rate
• Monthly inventory advance rates:
  • January through March: 75%
  • April through August: the lesser of 90% of appraised net orderly liquidation value and 75%
  • September: the lesser of 90% of appraised value and 65%
  • October: the lesser of 90% of appraised value and 50%
  • November: the lesser of 90% of appraised value and 45%
  • December: 60%
  Raw materials are capped at the lesser of 85% of appraised value and 75% of cost.
• Availability reserves include:
  • unremitted sales taxes
  • two months' rent for leased stores and distribution centers in landlord-lien states that lack collateral access agreements
  • customer credit liabilities and deposits
  • past-due rent
  • 50% of accrued gift card liabilities
  • bank product and cash management reserves
  • Carve Out reserves
  The prepetition "restructuring reserve" is removed at closing.
• The two ABL agents set reserves jointly. Disagreements involving up to $10 million go to whichever agent takes the more conservative credit view, and larger ones go to the administrative agent.
• Bank of America may make permitted overadvances of up to 5% of the borrowing base, outstanding for no more than 45 consecutive business days and made no more than twice in any 180-day period.
• A cash dominion event occurs on an event of default or when excess availability falls below the greater of 12.5% of the line cap and $15.625 million, and once triggered it is treated as continuing for the life of the facility. Credit card proceeds sweep daily to blocked accounts. During cash dominion, account balances sweep daily to a concentration account under Bank of America's sole control, and proceeds of term priority collateral are remitted to the term agent.
• If the term facility's financial covenants are later amended to be less favorable to the borrowers than the ABL's, or a new term financial covenant is added, the borrowers must amend the ABL to conform at the ABL agent's request.

Other Covenants

• Without the required consenting term lenders' consent, the debtors may not:
  • assume or reject material contracts or leases (consent not to be unreasonably withheld)
  • terminate or materially modify the consultant engagement letter of Steve Ortega
  They also may not form new subsidiaries except as the plan contemplates.
• No loan party may transfer, or exclusively license, material property, including intellectual property, to an affiliate that is not a loan party. Restricted payments are permitted only as the approved budget provides.
• The debtors must retain company advisors, including Simpson Thacher & Bartlett LLP and a financial advisor acceptable to the ABL agent. Berkley Research Group, LLC has been accepted.
• The ABL agent gets one inventory appraisal and one field examination at the debtors' expense, plus one more of each if ABL maturity is extended beyond six months after closing. Inventory returned against prepetition claims is capped at $1 million in the aggregate without agent consent.
• Reporting obligations:
  • weekly variance and liquidity reports each Friday starting Oct. 16, 2026
  • weekly borrowing base certificates
  • professional fee forecasts with each budget update
  • monthly financials starting with the month ending Oct. 31, 2026
  • quarterly financials starting with the quarter ending Jan. 2, 2027
  • annual financials starting with the fiscal year ending Oct. 4, 2026
  • weekly calls with the term steering committee and the ABL agent
  • drafts of material pleadings three business days before filing
  All financial reporting goes to committee counsel at the same time.

Milestones

• Each credit agreement requires compliance with its own milestone schedule; under the term facility, milestones may be amended or extended under the RSA. The term facility also requires the borrower to adopt a transformation committee mandate and form the transformation committee by the milestone date.
• Extending a milestone, waiving a covenant or default, or delivering an updated budget is not a material amendment that needs court approval, but the committee must be notified. Other non-material or non-adverse amendments also need only notice to the committee, while material amendments need court approval, which may be sought on an expedited basis.

Carve Out

• Post Carve Out Trigger Cap: $1.75 million
• Chapter 7 Trustee Fee: $100,000
• The Carve Out also covers clerk and U.S. Trustee fees and all allowed unpaid fees of debtor and committee professionals incurred through the first business day after a trigger notice. Investment banker and financial advisor transaction fees count only to the extent funded into the reserves from that transaction's proceeds. If the transaction sells DIP ABL priority collateral, they count only after the DIP and prepetition ABL are paid in full.
• The term agent (at the direction of the required DIP term lenders) or the ABL agent may send a trigger notice by email after an event of default, an acceleration or termination of cash collateral use.
• Each week, starting with the week ended Oct. 3, 2026, the debtors fund a segregated trust account with the sum of:
  • the greater of professionals' estimated unpaid fees and the fees budgeted for the week
  • the post-trigger cap
  • the fees budgeted for the next two weeks
• The ABL agent holds a matching reserve against the borrowing base, reduced by amounts already in the funded reserve. As to the ABL lenders, the Carve Out on ABL priority collateral is limited to the funded reserve and that borrowing base reserve until the DIP ABL is paid in full.
• After a trigger notice, the debtors fund separate pre-trigger and post-trigger reserves. The DIP agents and prepetition secured parties may not sweep or foreclose on cash until both reserves are fully funded. The one exception lets the ABL agents sweep ABL loan proceeds and proceeds of ABL priority collateral above the funded and borrowing base reserves. Leftover reserve funds go to the DIP agents, then to the prepetition secured parties.
• A professional that delivers a weekly fee statement more than three calendar days late can recover only its budgeted amount from the pre-trigger reserve for that period.
• The Carve Out ranks senior to all DIP and prepetition liens, superpriority claims and adequate protection. Neither the budget nor the Carve Out caps allowed professional fees, and amounts used to fund the Carve Out are added to the DIP obligations.

Securities and Priorities

• Both DIP facilities hold section 364(c)(1) superpriority administrative claims, subject to the Carve Out and the order's relative lien priorities. These claims can be paid from all property, including avoidance action proceeds once the final order is entered, but not from the avoidance actions themselves.
• The DIP liens are subject to the Carve Out and permitted liens and consist of:
  • First-priority liens on previously unencumbered property under section 364(c)(2)
  • Junior liens on property subject to permitted liens under section 364(c)(3)
  • Priming liens on the prepetition collateral under section 364(d)(1)
• DIP collateral covers substantially all assets, including:
  • a pledge of the equity of all direct U.S. subsidiaries
  • unencumbered cash
  • owned real estate and leaseholds
  • intellectual property
  • commercial tort claims
  • proceeds of section 506(c) rights against parties other than the secured parties
  It excludes excluded assets, avoidance actions, real property leases where a lien would breach the lease (lease proceeds remain covered), and landlord-held security deposits and prepaid rent unless the lease permits liens.
• The final order ranks liens as follows:
  • Term priority collateral and similar previously unencumbered property: Carve Out; DIP term liens; term adequate protection liens; prepetition term liens; DIP ABL liens; ABL adequate protection liens; prepetition ABL liens
  • ABL priority collateral and similar previously unencumbered property: Carve Out; DIP ABL liens; ABL adequate protection liens; prepetition ABL liens; DIP term liens; term adequate protection liens; prepetition term liens
  • Avoidance proceeds: Carve Out; DIP term and DIP ABL liens, pro rata; term and ABL adequate protection liens, pro rata
• Ad valorem tax liens of specified Texas taxing authorities keep their priority and are not primed. Reclamation rights under section 546(c) are not permitted liens and rank below the DIP liens.
• Wherever prepetition lenders are named as additional insureds or loss payees, the DIP agents are too, and insurance proceeds go first to the DIP obligations.
• The liens, superpriority claims and Carve Out survive dismissal or conversion. Under section 1141(d)(4), the debtors waive any discharge of remaining DIP and adequate protection obligations.
• The final order gives the DIP lenders section 364(e) protection and the prepetition secured parties section 363(m) protection.

Adequate Protection

Prepetition ABL Secured Parties

• Replacement liens on the DIP collateral, including avoidance proceeds, and section 507(b) superpriority claims, both to the extent of any diminution in value and subject to the Carve Out and the lien waterfall
• Current cash payment of non-default interest on prepetition ABL obligations until they are rolled up
• Agency fees and the fees of Morgan Lewis, Bracewell and FTI

Prepetition Term Loan Secured Parties

• Replacement liens on the DIP collateral, including avoidance proceeds, and section 507(b) superpriority claims, both to the extent of any diminution in value and subject to the Carve Out and the lien waterfall
• Agency fees and the fees of Seward & Kissel; the term lender group's fees, covering Akin Gump, Houlihan Lokey, a specified consultant and local counsel

• Adequate protection fees exclude costs of contesting the DIP motion and of prohibited actions other than defense. The prepetition secured parties may ask for more protection, subject to the intercreditor agreement.
• If either prepetition lender group is finally found to have been undersecured at the petition date, the committee may seek to recharacterize payments that lender received under the order's expense and indemnification provisions as payments of principal.

Avoidance Actions

• Avoidance actions are excluded from the DIP collateral. Once the final order is entered, the DIP liens and superpriority claims and the adequate protection liens and claims reach avoidance proceeds.
• Before seeking payment from avoidance proceeds, commercial tort claims or D&O insurance proceeds, the DIP and prepetition secured parties must use commercially reasonable efforts to recover from other collateral first.
• Until a plan effective date, conversion or dismissal, the debtors must give the committee five business days' notice before pursuing an avoidance action.

Challenge Period

• The deadline to bring a challenge is:
  • For the committee: the earlier of the plan confirmation objection deadline and 75 calendar days after its Oct. 14, 2026, appointment
  • For all other parties in interest: 75 calendar days after entry of the interim order
  • For a trustee appointed before the deadline: the longer of the remaining period and 30 days after appointment
• The committee's deadline can be extended:
  • by email consent of the debtors, the ABL agent and the required consenting term lenders, or
  • by a motion for cause that is heard before the deadline.
  A timely standing motion that attaches a complaint tolls the deadline, but only for the party that filed it and only for the claims in the complaint.
• The debtors and secured parties waive any defense that the Delaware Limited Liability Company Act bars standing to bring a challenge on behalf of an LLC debtor.
• If no successful challenge is timely filed, the prepetition claims are allowed and the stipulations bind all parties, including any trustee.
• A facility counts as paid in full only once its commitments are terminated and the challenge period has expired with no challenge, or any timely challenge has been finally resolved. A credit bid that the court approves and that closes counts toward payment in full.

Releases

• Effective on entry of the interim order, the debtors and estates release a defined group of parties from all claims relating to the prepetition and DIP documents. This includes lender liability, equitable subordination and lien challenges; the release reaches avoidance actions once the final order is entered. Claims arising from gross negligence, fraud, bad faith or willful misconduct are carved out, and the release is subject to the challenge provisions. The released parties are:
  • the DIP agents, Alter Domus and Bank of America
  • the DIP lenders, including Jefferies as fronting lender
  • the prepetition secured parties: Bank of America, U.S. Bank, Alter Domus and the prepetition ABL and term lenders
  • each of their officers, directors, advisors, affiliates and other representatives
• Under the ABL agreement, the borrowers and holdings also waive agency and fiduciary-duty claims against the ABL agents, arrangers, bookrunners and lenders.

Credit Bid

• Once the final order is entered, each party below may credit bid, dollar-for-dollar, directly or through acquisition vehicles, in any sale, including under section 363 or a plan subject to section 1129(b)(2)(A)(ii)-(iii). This is subject to section 363(k), the challenge provisions, the intercreditor agreement and the lien waterfall.
  • ABL agent: the DIP ABL obligations, against ABL priority collateral
  • Term agent, at the direction of the required DIP term lenders: all or part of the DIP term obligations, against term priority collateral
  • Prepetition term agent: the prepetition term obligations, including adequate protection claims, against term priority collateral
  • Prepetition ABL agent: the prepetition ABL obligations, including adequate protection claims, against ABL priority collateral
• A party may credit bid on the other facility's priority collateral only if that facility's DIP and prepetition obligations are paid in full at the same time. If a sale includes both kinds of collateral and the parties cannot agree on allocating the price, any agent may ask the court to decide at an emergency hearing, consistent with the intercreditor agreement.
• Credit bid rights may be assigned to acquisition entities. All four agents are deemed qualified bidders, and the debtors may not object to their credit bids.

Waivers

• Section 506(c): no surcharge of the DIP or prepetition collateral, other than the Carve Out, without the relevant agent's consent
• Section 552(b): the "equities of the case" exception does not apply to the prepetition secured parties
• The equitable doctrine of "marshaling" does not apply to the DIP or prepetition secured parties, subject to the requirement to look to other collateral before avoidance proceeds
• Payments to the agents are received free and clear of section 506(c) and 552(b) claims, and the loan parties waive any section 105 relief that would impair the lenders' remedies.

Events of Default and Termination Events

• When any of the final order's termination events occurs, the requisite lenders under the affected facility may accelerate it and terminate commitments, subject to the Carve Out and the notice period:
  • An event of default under either DIP credit agreement
  • Failure to comply with the final order
  • The termination or maturity date of either facility
  • An order authorizing other use of collateral or cash collateral, or section 364 financing, or a debtor motion seeking one, without consent of the ABL agent and the required consenting term lenders
  • Dismissal of any case or conversion to Chapter 7
  • Filing of a plan or disclosure statement that the required consenting term lenders and the ABL agent have not approved (approval not to be unreasonably withheld)
• Case-specific term facility defaults include:
  • Failure to pay principal when due, or interest, fees or adequate protection within five business days
  • Breach of the milestone, transformation committee, variance, minimum liquidity or other negative covenants
  • Termination of the RSA, unless caused by a DIP lender's breach, or a plan or disclosure statement materially inconsistent with the RSA
  • A section 363 sale motion, without consent of the required consenting term lenders, that does not pay in full in cash the DIP obligations, the prepetition term debt and the term adequate protection obligations
  • Loss of exclusivity, unless the required consenting term lenders requested or supported it
  • Appointment of a trustee, examiner or responsible officer with expanded powers, if the appointment is not reversed within 15 days and was not consented to
  • Stay relief allowing foreclosure on collateral worth more than $500,000
  • Debtor litigation against the DIP lenders or challenges to the prepetition term lenders' claims or liens
  • Cross-default to the DIP ABL or other debt above $1 million; judgments above $1 million unpaid and unstayed for 60 days
  • A change of control, including acquisition of more than 50% of holdings' voting stock
• Case-specific ABL defaults include:
  • Failure to pay interest or fees within three business days
  • Breach of the budget covenant, the financial covenants, or cash management covenants during cash dominion
  • Termination of the RSA, unless caused by a DIP term lender's breach
  • Filing of a plan that does not terminate the ABL obligations by its effective date (or give treatment acceptable to the agent and lenders) and does not include a customary release of the DIP and prepetition ABL agents and lenders
  • Termination or expiration of exclusivity
  • Appointment of a trustee, or of an examiner with expanded powers to operate or manage the business
  • A sale of all or substantially all assets, without the ABL agent's consent, that does not pay the DIP and prepetition ABL obligations in full in cash at closing
  • A motion to sell assets worth more than $500,000 outside the ordinary course
  • Payment of prepetition claims outside the budget or first-day orders without agent consent
  • A final order that does not include section 506(c) and 552(b) waivers satisfactory to the agent
  • An order denying or terminating the debtors' use of cash collateral
  • Cross-default to the DIP term loan or other debt above $1 million; judgments above $1 million undischarged for 45 consecutive days
  • A change of control

Remedies

• After a termination event, the term agent or ABL agent must file a stay relief motion on at least five business days' notice, which may be given by email; that period is the notice period. Only after the court grants the motion may the secured parties do the following, consistent with the intercreditor agreement:
  • freeze accounts
  • set off
  • foreclose
  • occupy the debtors' premises
  • sell collateral
• The parties consent to an expedited hearing, and the debtors and committee may seek an emergency hearing during the notice period. Under the ABL agreement, the only issue that may be raised at that hearing is whether an event of default occurred, and the loan parties waive any right to nonconsensual use of cash collateral.
• During the notice period, neither the DIP nor the prepetition secured parties may exercise remedies, and the debtors may use DIP proceeds drawn before the default, and cash collateral, to fund operations under the budget. When the notice period ends, the right to use cash collateral stops unless the court orders otherwise.
• Secured parties may enter leased premises only under an agreement with or consent from the landlord, pre-existing nonbankruptcy rights, or a court order entered after the landlord has notice and an opportunity to be heard.
• Collections after ABL remedies go first to permanently reduce any remaining prepetition ABL obligations. Term collateral proceeds after acceleration go first to agent enforcement costs, then agent fees, then the obligations, with interest paid before principal.