TriMark Lenders’ Suit Over Financing Can Proceed, Judge Says

(Bloomberg) -- TriMark USA must face a lawsuit seeking to void a controversial financing that has roiled the $1.2 trillion leveraged loan market, after a New York state judge denied a bid to throw out the case.

Lenders to the food services company, including BlueMountain, Z Capital Credit Partners and Golub Capital Partners, sued TriMark in November alleging that its new debt violated the terms of its borrowing agreements and allowed a group of other lenders to take priority over them. The loan in question allowed a handful of investors that gave fresh money to the company to jump ahead of other lenders in the repayment pecking order.

Justice Joel M. Cohen on Monday denied a motion to dismiss by the defendants, which also include money mangers Oaktree Capital Management and Ares Management Corp., allowing a claim for breach of contract to go forward while throwing out claims including that the company and some of its lenders didn’t act in good faith. 

Oaktree and Ares declined to comment on the ruling. TriMark didn’t respond to requests for comment.

Read More: BlueMountain Group Sues Ares, TriMark to Void Controversial Loan

“We have said from the beginning that the uptiering scheme violated our sacred rights under the credit agreement, and Justice Cohen has affirmed that we can go forward on our breach of contract claims,” said Jennifer Selendy of Selendy & Gay, which represents first-lien lenders in the case. “We are delighted with that.”

The lawsuit has been tracked closely by participants in the syndicated leveraged loan world, since it has the potential to set critical precedents for lender rights. The financing deal was among a trio in 2020 that appear to have broken with market conventions for how lenders in the same loan are treated, as some “uptiered” themselves by pushing others down the line without their consent.

The defendants argue they didn’t need the permission of the other lenders to enter into the agreement. But the judge noted the “sacred rights” provisions in the credit agreement, saying that “even assuming the defendants’ interpretation is plausible, it is not the only reasonable way to read the contract” and that it could be read to require the consent of the plaintiffs, which also include Audax Group and Intermediate Capital Group.

The two private equity owners, Centerbridge Partners and Blackstone, that purchased TriMark in 2017 in a $1.27 billion buyout have been dropped from the suit. 

Centerbridge and Blackstone declined to comment on the ruling. 

The case is Audax Credit Opportunities Offshore Ltd. v. TMK Hawk Parent Corp., 565123/2020, New York State Supreme Court, New York County.

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