In 2023, At Home Group made news by engaging in a liability management exercise in the form of a double dip transaction to raise new money to address its liquidity issues. Notwithstanding the cash infusion, the company has still struggled with reduced consumer spending and a deflated housing market, a situation that has been further complicated by the Trump administration’s imposition of high tariffs on goods imported from China. Given these problems, the company has recently been reported to be considering a restructuring in Chapter 11.

If the company does file for bankruptcy, one question will be whether the company’s double dip transaction will be challenged and, if so, how it would hold up to judicial scrutiny. Another question, given the company’s operational woes, is whether it might reduce its operational footprint to right its course. In this article, the Debtwire legal analyst team addresses these questions, provides an overview of the double dip transaction and the potential challenges that could be raised, and discusses how reducing the company’s footprint might affect its success.

Double dip transaction alters capital structure and improves certain lenders’ credit support 

At Home, which sells home furnishings, currently operates approximately 260 stores in 40 states. In July 2021, the company went private when funds affiliated with global equity firm Hellman & Friedman acquired At Home Group Inc.

Prior to a liability management exercise (LME) conducted in 2023, At Home had an ABL facility, a USD 600m first lien term loan, and had issued USD 300m in 4.88% senior secured notes due 2028 and USD 500m in 7.125% senior unsecured notes due 2029.

As noted, At Home’s LME took the form of a double dip transaction. Generally, in such a transaction, a company (which has existing first lien debt) identifies or forms a special purpose entity (SPE) that holds no assets and does not guaranty any debt of the company. The SPE then (i) incurs debt (the SPE Loan), which is guaranteed on a first lien basis by the company, (ii) makes an intercompany loan of the proceeds of the SPE Loan to the company, and (iii) pledges the intercompany receivable to the SPE lenders to secure the SPE Loan.  As a result of the transactions, the SPE lenders have two first-lien claims on the assets of the company.  The two claims on the company’s assets stem from (i) the intercompany loan from the SPE to the company, which was pledged to the SPE lenders to secure the SPE Loan and is secured by the company’s assets, and (ii) the guaranty by the company of the SPE Loan, which again is secured by the company’s assets. The SPE lenders seek to maximize their recovery in an anticipated restructuring by establishing multiple independent allowed claims against the company on account of the same debt (here, the direct claim against At Home’s assets via the guaranty and the indirect claim against those assets via the pledged intercompany loan, both of which are pari passu with (and thus dilute) the claims of At Home’s other first lien creditors).[1] This enhanced credit protection makes it potentially easier for a financially distressed company to access additional funds from the capital markets.

Although double dip transactions are newly in vogue, they are not new. The original double dip transactions arose in the context of debt incurred by foreign transactions for other business reasons such as tax liability purposes. Creditors sniffed out these preexisting transactions for investment opportunities to buy debt at a discount. The At Home transaction, however, represented a new motivation for double dips – as a liability management exercise by a distressed company seeking to entice lenders to infuse new money into the company to improve its liquidity situation.

The At Home double dip transaction reflected this new motivation. To effectuate its own double dip, At Home Group, Inc (At Home Group) formed a new Cayman Islands entity that issued USD 200m of 11.5% senior secured notes due 2028 to entities that owned some of At Home Group’s unsecured notes. The SPE then loaned the proceeds to At Home Group in exchange for an intercompany note. The senior notes were guaranteed by At Home Group and some of its restricted domestic subsidiaries – which was the first “dip” for the new senior noteholders. In addition, the Cayman SPE pledged its receivable on the intercompany note to the senior noteholders – the second “dip.” Also, in connection with that transaction, holders of approximately USD 447m of the company’s USD 500m 7.125% senior unsecured notes due 2029 exchanged them for USD 412m in new 7.125%/8.625% cash/PIK toggle senior secured notes due 2028. The new senior notes and the intercompany loan were all pari passu with the existing term loan and senior notes debt. According to Debtwire’s Restructuring Database, USD 58m of the original USD 500m in unsecured notes remain outstanding.

As of 8 May, the 11.5% notes issued by the Cayman SPE were quoted at 70, according to Markit. In contrast, both the USD 412m 7.125% senior secured notes due 2028 and the USD 300m 4.875% senior secured notes due 2028 were quoted at 27, and the USD 600m SOFR+ 425bps term loan due 2028 was last quoted at 27/31, possibly reflecting investors’ belief that the double dip transaction will provide a higher recovery than the company’s other pari passu debt.

Potential challenges to At Home’s double dip in a Chapter 11 case

At Home is reportedly preparing a potential bankruptcy filing in New Jersey that would involve a debt-for-equity swap that would see creditors take control. The company has been working with Kirkland & Ellis and PJT Partners, the same advisors that guided it through the double dip transaction. It has also engaged AlixPartners as a financial advisor and engaged Hilco to evaluate its store leases.

If the holders of the company’s term loans or 4.88% USD 300 million senior notes can’t be brought on board with a prepackaged or prearranged restructuring, it is possible that they could try to challenge the double dip transaction. This is because, as creditors holding debt that is pari passu with the 11.5% senior notes and the intercompany loan, their recovery would be diluted by any recoveries by the 11.5% noteholders because the latter could assert and recover on two claims – the direct company guaranty and the pledge of the receivables on the intercompany loan.

At Home, and the creditor beneficiaries of the double dip transaction, are likely to be motivated to ensure that all noteholders are on board for any restructuring. Otherwise, there is a risk that the transaction could be challenged in bankruptcy. As double dip transactions arranged as LMEs have not been tested in the bankruptcy courts, the failure to reach such a resolution could create uncertainty for creditor recoveries in any Chapter 11 case.

There are several theories by which disgruntled creditors could seek to challenge a double dip transaction. For one, they could seek to equitably subordinate the intercompany claim to the claims of the other creditors who are pari passu with the intercompany debt. Bankruptcy courts, as courts of equity, have greater flexibility to have concepts of fairness and justice guide their rulings. Bankruptcy Code section 510(c) codifies some of these equitable powers, providing that a bankruptcy court can equitably subordinate an allowed claim for purposes of distribution. Under a frequently used test, a court can equitably subordinate a claim if (i) a party acted inequitably, (ii) the misconduct injured creditors or conferred an unfair advantage on that party, and (iii) equitable subordination is consistent with bankruptcy law.[2] Courts have held that the most important factor in determining whether a party has engaged in inequitable conduct is whether the party was an insider at the time of the act.[3] If the party is not an insider, then a plaintiff must allege that the party engaged in gross misconduct.[4] Thus, to succeed on an equitable subordination claim, assuming that the holders of the 11.5% notes are not insiders, any party attacking the double dip transaction would have a relatively high hurdle; it would probably not be enough simply to argue that the claim on the intercompany receivable should be subordinated simply because it isn’t fair for the holders of the latter to have two bites at the apple for the same claim. For these reasons, we would not expect to see a high degree of success with this argument.

An additional course of action could be to seek to recharacterize the intercompany loan as equity. The test for recharacterization focuses on whether a debt actually exists and, even though a company labels a transaction as a debt transaction, it is more in the nature of equity. Courts do not apply a “mechanistic scorecard” in recharacterizing a debt and weigh various factors, including (i) the parties’ intent, (ii) whether the loan has a fixed maturity date, (iii) whether there is a right to enforce payment of principal and interest, including if the company becomes insolvent, (iv) and whether the lenders were existing stockholders and had voting rights.[5] At this point, it is difficult to meaningfully gauge the merits of such an argument because the analysis would be based on the specific loan documents, which are not publicly available. If such a claim were successful, however, the Cayman SPE’s intercompany loan would be viewed as more in the nature of a dividend.

The double dip transaction also could be challenged as a constructive fraudulent conveyance, which occurs where the debtor does not receive reasonably equivalent value in a transaction and (i) was insolvent or became insolvent as a result of the transaction, (ii) was engaged in or about to engage in business or a transaction for which it had unreasonably small capital, or (iii) intended to or believed that it would incur debts beyond its ability to pay.[6] Double dip transactions, including the At Home transaction, can theoretically be attacked on the ground that because the debtor has incurred two obligations – the guaranty and the intercompany loan obligations – in exchange for a single income source, the guaranty was incurred for no additional value. Such an analysis might involve the application of the collapsing doctrine, an equitable doctrine pursuant to which multiple transactions are collapsed into a single transaction for purposes of the fraudulent conveyance laws.[7] For example, as Debtwire recently reported, containerized logistics services provider STG Distribution has been sued by Axos Financial and Siemans Financial Services in connection with a double dip transaction and seek to avoid the transaction as a constructive fraudulent conveyance.

Finally, creditors could attack the double dip by seeking the substantive consolidation of the estates of the bankruptcy debtors. Substantive consolidation treats all of the debtors’ different estates as a single entity, and all claims against the various debtors are treated as claims against that consolidated entity. The general prerequisites for substantive consolidation are that either (i) prior to the bankruptcy the company’s various entities disregarded corporate separateness to such an extent that creditors treated them as one legal entity or (ii) after a bankruptcy filing the company’s assets and liabilities are so intertwined that separating them is impractical and would harm creditors.[8] However, because substantive consolidation is a “rough justice” remedy that can “profoundly” alter creditors’ rights and recoveries, it is considered a remedy of “last resort” that is rarely applied.[9] It is therefore unlikely that any substantive consolidation claim would succeed.

The benefits of right sizing 

At Home leases all of its locations. Thus, another action that we might see At Home taking in a Chapter 11 bankruptcy case is the attempt to right size its lease obligations. This could take the form of renegotiating rent obligations, rejecting commercially disadvantageous leases and/or closing less profitable locations. As noted, has hired Hilco to renegotiate the company’s rents.

The Bankruptcy Code gives debtors leverage in renegotiating leases. Upon a debtor’s rejection of a lease, the Code gives a landlord an allowed general unsecured claim capped at the rent for the greater of one year or 15%, in the latter case not to exceed three years of the lease’s remaining term, plus any unpaid rent due as of the petition date.[10] The prospect of a minimal recovery upon the rejection of a lease, especially one with a long remaining term, could motivate landlords to make concessions to preserve the lease.

However, footprint reduction is not always the answer for troubled companies. For example, when Party City filed its first bankruptcy in January 2023, part of its reorganization strategy was to close some of its approximately 823 stores. In total, the company closed 48 stores during the bankruptcy cases and 27 additional stores after it exited from bankruptcy. However, those closures did not prevent the company from making a second trip into bankruptcy in December 2024, this time to liquidate its remaining 692 stores.

As yet another example, retail pharmacy Rite Aid, which filed for bankruptcy in October 23, closed 345 stores from the petition date to the date of its amended disclosure statement, and stated that its goal was to close 580 total stores. Notwithstanding, the company has just filed another Chapter 11 case, this time to run a sale of its assets.

Ultimately, if At Home files for bankruptcy, it is possible that we can expect to see some attempt by the company to adjust its lease portfolio, either through renegotiation or lease rejection and store closures. However, in view of recent similar restructuring attempts, such as Rite Aid, which emerged from Chapter 11 in  2024 only to return to Chapter 11 this week (on 5 May), whether such a measure will assure the company’s future is unclear.

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Paul Gunther is a former practicing restructuring and litigation attorney. Prior to joining Debtwire as a Legal Analyst, Paul practiced in the New York offices of Dentons US LLP, Salans LLP and Mayer Brown LLP. He has represented various constituencies in high-profile restructurings.

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