• Jefferies Capital leads term loan lenders taking approximately 95% stake in reorganized Leslie’s
• General unsecured creditors receive minimal recoveries from USD 500,000 cash pool
• New term loan and ABL facility established, with USD 60m equity backstop

Leslie’s, a retailer of pool supplies, and nine affiliates entered Chapter 11 on 30 September with a restructuring support agreement restructuring support agreement (RSA) with the holders of approximately 81% of their outstanding first lien funded debt obligations. That ad hoc group of consenting term loan lenders is represented by Akin Gump Strauss Hauer & Feld and advised by Houlihan Lokey Capital, as financial advisor. The RSA lays out the terms for a plan of reorganization that will reduce the debtors’ funded debt by over USD 685m.

The debtors have since filed a disclosure statement and Chapter 11 plan that implements the terms of the RSA and hands over half of the new equity to term loan lenders that signed on to the RSA, while leaving general unsecured creditors with only de minimis recoveries.

The debtors entered Chapter 11 with approximately USD 787m in funded debt, including USD 30m outstanding under an ABL facility and USD 757m outstanding under a term loan facility.

Post-petition and exit financing

The debtors will fund their case with a USD 90m DIP term loan (with Jeffries Capital as fronting lender) and a USD 225m DIP ABL facility, which includes a roll-up (upon final DIP financing approval) of all outstanding obligations under the prepetition ABL facility. Alter Domus is the agent on the pre- and postpetition term loans and Bank of America is the agent on the pre- and postpetition ABL facilities.

Under the plan, USD 75m of the DIP term loan claims will be converted on a dollar-for-dollar basis to new term loan obligations, and the remaining DIP term loan claims will be converted into 30% of new equity to be issued by either the reorganized Leslie’s or a newly formed entity that will, directly or indirectly, own 100% of the interests in the reorganized debtors, subject to dilution on account of the management incentive plan (MIP); 10% of the new common equity will be reserved for the MIP. DIP ABL lenders’ claims will either be, with the consent Bank of America, as agent, and the lenders, refinanced by means of a cashless settlement or repaid in full and in cash.

As such, the debtors will emerge from Chapter 11 with a new term loan and ABL facility, and new common equity. Certain term loan lenders that are parties to the RSA have agreed to backstop the equity by investing USD 60m through a private placement for a 55.8% stake. The backstop parties will receive a premium totaling 4.20% of the new common equity, subject to dilution on account of the MIP.

Recoveries

In terms of distributions on prepetition claims, to the extent that any portion of the ABL facility was not rolled-up into the DIP ABL facility, lenders will either participate in the new ABL facility or be paid in full in cash. Prepetition term loan lenders will share 10% of the new common equity as payment on their claims, and shareholders will be wiped out.

General unsecured creditors will not fare much better than shareholders, as they will share a USD 500,000 cash pool. Claims listed on the debtors’ top 30 unsecured claims list exceed USD 37m, leaving very little for unsecured creditors in terms of recoveries.

Additional plan provisions

The plan provides for standard non-debtor releases and includes releases of claims against parties to the RSA, the pre- and postpetition agents, and all ABL lenders.

Leslie’s has asked the bankruptcy court to shorten the notice period with respect to its disclosure statement hearing, arguing that time is of the essence because the restructuring transactions must be implemented by the end of calendar year 2026 so that Leslie’s will be able to enter the upcoming inventory buying season as reorganized entities. According to Leslie’s, the debtors will be able to obtain more favorable terms with vendors as reorganized debtors, as opposed to Chapter 11 debtors. Also, 8 January 2027 is the outside milestone for entry of the confirmation order under the RSA.

Prior to joining Debtwire, Sara was a law clerk to two judges in the United States Bankruptcy Court, S.D.N.Y. and practiced in the Financial Restructuring Group at Clifford Chance, where she represented financial institutions (as secured and unsecured creditors, defendants in adversary proceedings, and participants in DIP financings) in high-profile restructurings. She also represented foreign representatives in Chapter 15 cross-border cases.

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