On August 21, 2024, the U.S. Bankruptcy Court for the Southern District of Texas held that, while the debtor breached an agreement arising from an uptier transaction, the creditor was limited to a breach of contract claim and could not have its "required lender" status restored or maintain an indemnification claim because of the breach. The indemnification portion of the ruling centered around the term "performance," with the court ruling that "performance" is not the same as "non-performance." The court ultimately allowed a deficiency claim approximating $50 million in connection with a proof of claim that asserted over $150 million in damages.
In May 2023, Robertshaw US Holdings Corp. negotiated an uptier transaction with its controlling lender Invesco Senior Secured Management Inc. and a group of other lenders (all known as the "Ad Hoc Group") that, among other things, amended an existing credit agreement, produced a new super-priority credit agreement, provided additional funding, and allowed participating lenders to exchange their existing loans for loans under the new facility. After the uptier transaction, Robertshaw missed an interest payment and was facing a liquidity crunch. Invesco began negotiating with Robertshaw in connection with a new facility and potential bankruptcy filing, and in doing so (and unbeknownst to the Ad Hoc Group), entered into various amendments to the credit agreement to extend the interest payment date. When Invesco was unable to negotiate a consensual deal with Robertshaw, the Ad Hoc Group, after finding out about the amendments (and a looming bankruptcy), began working with Robertshaw on an alternative transaction that ultimately closed. The new transaction resulted in, among other things, a prepayment to Invesco of over $90 million.
However, Invesco would not accept the prepayment and commenced a state court action alleging that the prepayment violated the super-priority credit agreement because not all the proceeds from the new transaction were used to pay off existing indebtedness; the proceeds also were not distributed pro rata among all tranches of debt. Robertshaw then commenced its bankruptcy case, and the bankruptcy court addressed the dispute. The bankruptcy court ultimately held that (i) the Ad Hoc Group, and not Invesco, were the "required lenders," (ii) the Ad hoc Group did not breach the super-priority credit agreement, and (iii) Invesco's theory of damages that attempted to place Invesco in the position it would have been if it retained "required lender" status was "pure speculation." However, the bankruptcy court did find that Robertshaw breached a provision of the super-priority credit agreement by failing to remit 100% of the net proceeds of the loan. The court permitted Invesco to file a proof of claim for any alleged monetary damages arising out of the breach of contract.
Invesco's proof of claim asserted (in addition to attorneys' fees and prejudgment interest) $39.4 million in damages from Robertshaw's failure to use 100% of the net proceeds of the loan, and $66 to $102 million in damages representing the value of equity interests and/or takeback debt that Invesco would have received in a restructuring of Robertshaw that complied with the super-priority credit agreement and accomplished the purpose of the deal Invesco attempted to do with Robertshaw. While the court awarded Invesco the prepayment damages, it disallowed the debt and equity damages reasoning that they were consequential damages that were waived under the agreement and too speculative.
Invesco also asserted an indemnification claim that it contended arose from Robertshaw's "performance" under the super-priority credit agreement. The court disagreed. While the indemnification provision referenced the parties' "performance," the court—applying the term's plain meaning—found that "performance" is not the same as "non-performance' or breach. The court found that Invesco had a breach of contract claim based on a failure to perform, not an indemnity claim based on performance (or, more particularly, the failure to perform).
The case is In re Robertshaw US Holding Corp., Case No. 24-90052 (Bankr. S.D. Tex.). Robertshaw is represented by Hunton Andrews Kurth LLP and Latham & Watkins LLP. Invesco is represented by Glenn Agre Bergman & Fuentes LLP and Holland & Knight, LLP. The Ad Hoc Group is represented by O'Melveny & Myers LLP. The opinion is available here.
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