Contributors Speak Up: Del Monte, DIP Roll-Ups, and the Future of Pro Rata Treatment
For several years, courts and market participants have wrestled with whether non-pro rata restructuring transactions implicate credit agreement sharing provisions and bankruptcy’s broader principle of equal treatment among similarly situated creditors.
In American Tire, Judge Goldblatt expressed skepticism toward a proposed non-pro rata DIP structure, suggesting that preferential treatment for participating lenders could implicate both pro rata sharing provisions and bankruptcy’s equal treatment requirements.
Del Monte appears to point in a different direction. There, Judge Kaplan concluded that a DIP roll-up did not itself constitute a payment or reduction of debt that would trigger the applicable pro rata sharing provision in the first instance.
We asked our expert Contributors for the implications of these decisions on DIP roll-ups and the future of pro rata treatment.
Our Contributors generally agree that Del Monte is significant not because it settled the debate over DIP roll-ups and pro rata treatment, but because Judge Kaplan deftly threaded the needle. By holding that a cashless roll-up was not itself a “payment” or “reduction” under the applicable credit agreement—while leaving open whether future payments on the rolled-up debt may ultimately implicate ratable sharing—he kept the transaction intact without foreclosing future litigation. In doing so, Del Monte provides the market with its first published merits decision on modern pro rata sharing provisions, while simultaneously leaving ample room for parties to continue debating their ultimate scope and application. The Contributors generally conclude that the decision will influence drafting, transaction structuring, participation rights, and venue selection, but whether its reasoning extends beyond DIP roll-ups to the broader universe of liability management transactions—including uptiers, drop-downs, exchange offers, and other non-pro rata restructurings—remains very much an open question.
Del Monte and DIP Roll Ups
By: Paul N. Silverstein, Hunton Andrews Kurth LLP
Introduction and Overview
Unless and until there is a clear ruling that ratable sharing provisions do not apply to DIP roll-ups, the Del Monte ratable sharing dispute will affect how DIP loans by pre-petition secured lenders with roll-ups are drafted or structured in future cases. Some new credit agreements are including a “Del Monte blocker,” which exclude roll-ups from ratable sharing provisions, and may address whether the DIP roll-up must be offered pro rata and on the same terms to all lenders in the credit. As to existing credit agreements, virtually all of which have “sacred right” ratable sharing provisions, like Section 2.17 of the Del Monte credit agreement, DIP loans with roll-ups will be drafted to fit within an exception to the ratable sharing provision, such as the “fee” exception in 2.17.
In Del Monte, Judge Kaplan kicked the can down the road as to whether payments under the rolled up debt violated the ratable sharing provision. He pushed the case towards plan confirmation notwithstanding the intercreditor dispute and ruled that the roll-up did not constitute a payment or reduction under Section 2.17 of the credit agreement possibly until actual cash payments were made. Thus, he kept alive for future litigation, and did not dismiss, the Minority Holders’ claim that upon actual payments of the roll-up debt the DIP lenders had to share pro rata pursuant to Section 2.17 of the credit agreement. Del Monte’s Chapter 11 plan was recently confirmed, demonstrating that the District of New Jersey is in the business of confirming chapter 11 plans – and that resolving inter-creditor disputes can wait without affecting a debtor’s need to reorganize.
Factual Summary
A “roll-up” in the DIP loan context involves a conversion, or “rolling up,” of the DIP lender’s pre-petition secured debt into the DIP loan such that the rolled up debt becomes a DIP loan and primes the existing pre-petition debt — senior to the pre-petition debt both in right of payment and in collateral coverage. If only a portion of the pre-petition debt is rolled-up into the DIP loan, the remaining pre-petition loan is subordinated, both in right of payment and in collateral coverage, to the rolled-up debt that formerly was part of the pre-petition loan.
The “ratable sharing” provision of the Del Monte credit agreement in issue, Section 2.17, provides in pertinent part that all Lenders agree “that if any of them shall . . . receive payment or reduction . . . [of any] amounts then due and owing . . . which is greater than the proportion received by any other Lender . . .” the Lender receiving such greater amount shall share such payment or reduction, pro rata, with the Lenders which did not receive such payment or reduction. To effectuate the sharing of any such payment or reduction, Section 2.17 further provides: “the Lender receiving such proportionally greater payment shall . . . apply a portion of such payment to purchase participations . . . so that all such recoveries . . . shall be shared by all Lenders in proportion to the [amounts] . . . due to them . . .”
In Del Monte existing First-Out term lenders agreed to extend DIP loans in the amount of $165 million. A condition to making such DIP loan was that the First-Out term loans, principal amount well in excess of $250 million, had to be rolled-up into the DIP loan. According to the factual record in the Bankruptcy Court, all holders of First-Out term loans were afforded an equal opportunity to participate in the DIP loan and roll-up on the same terms. The vast bulk of the First-Out term lenders participated in the DIP loan. Holders of approximately 5% of the First-Out term loan (the “Minority Holders”) declined to participate in the DIP loan and retained their pre-petition term loans.
The Dispute Among The DIP Lenders And The Minority Holders
The Minority Holders commenced an action in the Bankruptcy Court against the DIP lenders for breach of contract and declaratory judgment. They alleged that the DIP lenders had breached Section 2.17 when the roll-up was approved because there was a “payment” on and “reduction” of the term loan, and sought declaratory judgment that any future cash payments on the roll-up debt should be subject to ratable sharing under Section 2.17 on the same grounds. The Defendants/DIP lenders moved to dismiss the complaint on the grounds that the roll-up did not violate Section 2.17 of the credit agreement because “payment” under controlling New York law requires cash payment and “reduction” requires a discharge of the underlying pre-petition debt, neither of which, they alleged, happened. As to “reduction,” they alleged that the pre-petition debt that was rolled-up was not discharged, but only given enhanced priority, and pointed to language they included in the DIP Loan Order that the roll-up did not constitute a novation of the term loan. The DIP Lenders also contended that even if the roll-up was a payment or reduction, under Section 2.17’s exceptions, the roll-up was “a fee . . . in connection with . . . extension or commitment of funds,” i.e., the new money DIP loan.
Judge Kaplan’s Ruling
Judge Kaplan dismissed the Minority Holders’ breach of contract claim on the grounds that, under governing New York law, “payment” required cash payment, “reduction” required a “discharge,” and the mere rolling up of the vast bulk of the pre-petition term loan into the DIP loan did neither.1 Judge Kaplan stated: “[H]ad the Holdouts intended the [credit] agreement to prohibit a roll-up arrangement or to treat it as payment of pre-petition debt, the parties could have stated so expressly.” Judge Kaplan further stated: “It is nonsensical to suggest that the non-participating lenders . . . should secure the benefit of payment on their pre-petition loans, having taken no such risks, upon the entry of the Final DIP Order.”
Central to Judge Kaplan’s dismissal of the Minority Holders’ contract claim was the enforcement mechanism of Section 2.17, which would require the DIP lenders to buy pro rata participations from the Minority Holders in cash at par. It made no sense to Judge Kaplan that such remedy could be triggered merely by the Court’s approval of the roll-up — as opposed to if and when payments were made on the rolled-up debt because the DIP lenders would have to pay par when it was not then clear the rolled-up debt would be paid in full.
Observations
My initial reaction to the Del Monte ruling was that if we assume it is ultimately found that the ratable sharing provision, Section 2.17, applies to cash payments made to the roll-up Lenders, the DIP Lenders would argue that such payments were not on account of the pre-petition term loan but, rather, were payments on the DIP loan, as they argued in their reply brief: “In any event, any future payment on the Roll-Up Loans is payment under a different loan agreement (the DIP credit agreement) and not subject to § 2.17 of the pre-petition credit agreement.” Though the DIP Lenders may prevail on that theory, it is among many contradictory and inconsistent arguments or theories found in all of the briefing and in the Court’s ruling.
It seems fairly clear that when the pre-petition term loan was exchanged into the DIP loan by the roll-up, there was “payment” on and a “reduction” of the term loan. If the intention was to impose ratable sharing on DIP roll-ups, Section 2.17 should have included a provision for the rolled-up lender to share by exchanging a ratable amount of the rolled-up loan for an equal principal amount of the non-rolled up prepetition debt. But Section 2.17 provides only for purchasing participations in cash at par, which as Judge Kaplan noted, doesn’t make a lot of sense, particularly when the recovery on the rolled-up debt is uncertain.
It also seems fairly clear that particularly in a non-exclusionary deal, where all lenders can participate pro rata, on the same terms, in a DIP financing with a roll-up lenders who don’t participate in the new money DIP loan shouldn’t get the benefit of having their pre-petition loans rolled-up for nothing. That couldn’t have been the intention, but the contract language controls unless it is materially ambiguous. As indicated above, new credit agreements should make clear that DIP roll-ups do not implicate ratable sharing provisions.
Another curious thing here is why the Minority Holders opted not to participate in the DIP and have their pre-petition loan rolled-up. The Minority Holders own a tiny portion of the First-Out term loan. A roll-up of well over $250 million of pre-petition debt on a new money DIP of $165 million is a heck of a large “fee” or incentive to lend the new money.2 Sophisticated lenders/investors generally have an initial credible view of likely recoveries/valuations. Why would a lender/investor subordinate itself to such a large amount? Did the Minority Holders believe that whatever adequate protection claim they were given in the final DIP order would give them a sufficient administrative claim?3 Did they believe they would prevail under their ratable sharing arguments?
The Del Monte new money portion of the DIP ($165 million) has now been paid in full from asset sale proceeds, and it’s been reported that the roll-up has now already received twenty cents.
Perhaps the significant implication of Del Monte will be whether or not it will encourage exclusionary DIP roll-ups that are not offered to all existing lenders on equal terms. Though I suspect Bankruptcy Judge Goldblatt’s dicta in American Tire discouraged exclusionary DIP loans with roll-ups, a final ruling in Del Monte that ratable sharing does not apply to roll-ups may change that.
Drafting, Not Doctrine: What Del Monte and American Tire Tell Us About Pro Rata Treatment
By Mark Lightner, CreditSights & Ian Feng, Covenant Review
The chapter 11 cases of American Tire and Del Monte are often read as pulling in opposite directions on whether a non-pro rata DIP roll-up can sidestep the pro rata sharing protections that prepetition lenders negotiate in their credit agreements. We think the tension is more apparent than real. Read closely, American Tire and Del Monte are not competing statements of bankruptcy doctrine. In our view, they are two courts attempting to do the same thing: interpret the words of the credit agreement at issue. We think the lesson for the market is that a lender’s protection turns far less on any grand principle of equal treatment than on the words printed on the page.
Let’s start with American Tire, which produced no ruling but plenty of anxiety. During a colloquy at the close of a contested DIP hearing, Judge Goldblatt first described the proposed roll-up, which was not pro rata and not offered to minority lenders, as, in substance, “a draw on the DIP to pay down the prepetition credit agreement,” reasoning that any such paydown had to follow the agreement’s pro rata sharing terms. He called a contrary reading a “preposterous overreach” that made “zero commercial sense,” and his tentative inclination was to “approve [the DIP], and . . . wait for [the aggrieved lenders] to sue you and you’ll lose.” After counsel reframed the transaction as a cashless exchange rather than a borrowing used to make a payment, however, he pulled back, cautioning that he “wasn’t in any event intending to rule,” that the issue “might be more complicated than my gut-level reaction,” and that he did not know whether the conversion framing was right “or if it’s too cute by half.” The roll-up was ultimately stripped from the final facility. American Tire, to our minds, was a warning shot and not a holding.
Del Monte supplied the holding that American Tire withheld, and it cuts the other way, but only at first blush. After Del Monte Foods filed for Chapter 11, a minority group of prepetition lenders filed an adversary proceeding challenging a majority group of prepetition lenders’ participation in a DIP on the grounds that the roll-up violated the pro rata sharing provision of the prepetition credit agreement. Judge Kaplan ruled, albeit at the motion-to-dismiss stage, that the roll-up at issue was a cashless debt-for-debt conversion, not a “payment or reduction” of the prepetition debt, as those terms are understood in the pro rata sharing provision, because no debt had been discharged when the court approved the DIP. There was therefore no breach. But Judge Kaplan let a narrower declaratory claim survive: when the rolled-up loans are eventually satisfied, that satisfaction “may constitute ‘payment.’” The agreement was silent on roll-ups altogether, which, in our view, cut both ways because it defeated the immediate claim for breach but left open the future claim on payment.
Seen that way, the natural next question is whether Del Monte turned on unusual drafting or on language that is commonplace in the market. In short, the lack of any specific reference to DIP financing in the pro rata sharing clause in Del Monte is entirely market standard. While changes to pro rata sharing provisions are often treated as sacred in the BSL market, these provisions almost never address DIPs or roll-ups specifically, and the recognized exceptions to pro rata sharing have not historically included them. The outcome in Del Monte we think, therefore, flowed not from anything idiosyncratic in the drafting but from the silence that pervades the market.
Beyond whether the drafting was unusual, however, do American Tire and Del Monte matter, or is the result simply a function of drafting? We think it is mostly the latter, though that does not make them irrelevant. We do not read Del Monte as a doctrinal green light for non-pro rata structures, but as a fact-specific reading of one widely shared form of contract. Is there a meaningful difference between receiving cash on a claim and receiving new superpriority debt, enhanced collateral, or improved priority? At the moment of the transaction, perhaps, although we think the court’s conclusion on that point in Del Monte is somewhat strained. If accepted, however, that framing protects participants only at that instant. It does not immunize the eventual flow of value, which is exactly what the surviving claim in Del Monte preserves. We would therefore resist treating “non-cash” as a safe harbor for uptiers, drop-downs, exchange offers, and other maneuvers that rearrange priority without moving cash. Each raises its own legal and contractual issues and, more to the point, turns on its own contractual language.
And will Del Monte rewrite the playbook? In the near term, we expect two responses rather than one. First, drafting will adjust at the margins, with the approach taken dependent on whether the documentation is new issue or post-restructuring. Anecdotally, some newer agreements may deem non-pro rata DIPs as compliant with pro rata sharing (contractually enshrining the Del Monte holding). On the flip side, more explicit lender protections have appeared in post-LME documents (including a ratable offer requirement with respect to roll-ups—at least for certain favored creditors). Second, the forum will matter. Parties will gravitate toward venues perceived as receptive to the cashless-conversion analysis, as with other contested structures. But we doubt Del Monte alone shifts any doctrinal thinking since it rests on contract interpretation that another court, reading another agreement, could interpret differently.
If there is a unifying theme, it is the opportunity to participate. The Del Monte roll-up was offered to every first-out lender, and the minority declined. The excluded minority in American Tire found a more sympathetic judge. Offering a transaction broadly will not immunize deal, but it blunts the judicial skepticism that exclusion invites. For majority lenders and debtors, the path is to offer broadly and to document a genuine cashless conversion. For minority lenders, it is to bargain, before distress, for sharing and ratable-payment provisions that address roll-ups, and to tighten the DIP carve-outs in their Serta blockers. In the end, these decisions are best read not as a rule but as a roadmap, and the map is drawn in contract language.
Del Monte, DIP Roll-Ups, and the Future of Pro Rata Treatment
By Michael Handler, King & Spalding
In Del Monte, the U.S. Bankruptcy Court for the District of New Jersey made two key rulings: (i) approval of DIP roll-up loans did not breach the prepetition credit agreement’s ratable sharing sacred right protections because the roll-up did not constitute a “payment” or “reduction” of debt—instead, it was a “cashless exchange” that elevated the priority of the prepetition loans into post-petition obligations; and (ii) denial of the defendants’ motion to dismiss the plaintiffs’ declaratory judgment claim seeking a ruling that the DIP lender defendants must share in the economic value attributable to the roll-up under the pro rata sharing provisions.4
Notably, the bankruptcy court’s opinion did not address the defendants’ compelling argument that (i) the roll-up is a “court-approved enhancement” serving the purpose of Section 364 and part of the “long-settled” “backdrop principle” that “claimholders may receive favorable treatment in bankruptcy in exchange for providing new money to the debtor”; (ii) the plaintiffs’ assertion that a DIP roll-up violates pro rata sharing provisions “would sound the death knell for roll-up loans” because a nonparticipating lender would effectively receive the same priority on its prepetition loans as the roll-up loans; and (iii) the relevant sacred right relating to changes in loan priority was satisfied because the DIP loan and roll-up were offered ratably to all lenders.5
The Del Monte decision creates significant uncertainty regarding the viability of DIP roll-ups as part of a DIP financing arranged and backstopped by lenders under a syndicated senior secured facility. As the DIP-lender defendants point out, most credit agreements have the same or similar provisions as those at issue in Del Monte. Further, as discussed in my prior article on DIP financing participation, lenders address DIP financing participation as part of the sacred rights colloquially referred to as “Serta” protections.6 Thus, if Del Monte is followed, it would effectively require not merely offering minority lenders the right to participate in their ratable share of DIP and roll-up commitments, but also obtaining their consent to the roll-up itself. This could not only provide undue hold-up value to minority lenders, but would also conflict with the power and discretionary decision-making vested exclusively with the agent (or the agent acting at the direction of “required lenders”) relating to collateral and enforcement of remedies—including consent to matters implicating adequate protection, such as usage of cash collateral and subordination of prepetition liens to DIP liens.
Importantly, the courts in both Del Monte and American Tire agree that the terms of a prepetition loan agreement are relevant in examining roll-up permissibility and whether approval could give rise to a damages or other monetary claim from minority, non-participating lenders. Yet, whereas the court in Del Monte ruled that a roll-up was not a payment, the court in American Tire expressed skepticism of the majority ad hoc group’s position that the roll-up was not a payment (or purchase). Indeed, in American Tire (where I represented the minority term lenders excluded from DIP participation), the debtors’ own DIP motion described it as a payment. Moreover, at least one Delaware bankruptcy court has conclusively described it as a payment.7 In contrast, the U.S. Bankruptcy Court for the Southern District of Texas in In re Speedcast ruled that a roll-up was neither a prepayment nor implicated the payments waterfall, but instead should be viewed as a new priming loan whereby the lenders fund one dollar of new money to receive two dollars while effectively waiving their prepetition loans.8
Given the prevalence of roll-ups as part of DIP financing and their importance in lowering the cost of DIP financing capital for borrowers, it may be in all parties’ interest (save bankruptcy litigators) to codify the practice in Section 364 of the Bankruptcy Code, in which case courts would likely hold that such provisions preempt conflicting state contract law rights. Until then, I expect debtors and majority lender ad hoc groups to address Del Monte head-on where there is a viable risk of minority lender litigation, and to condition the DIP on express bankruptcy court approval that the roll-up is permitted and would not give rise to a monetary claim from non-participating lenders.
Beyond the roll-up jurisprudence—and perhaps dampening enthusiasm for New Jersey as a bankruptcy venue—the Del Monte decision will likely have limited effect on the broader jurisprudence regarding whether a cashless debt exchange is a payment or purchase, as prominently litigated in the Serta dispute, and/or whether such exchanges implicate pro rata sharing provisions.
Del Monte Clarifies What American Tire Never Decided
By: Ben Schlafman, New Generation Research, publisher of BankruptcyData
My reaction is that the market may have spent the last eighteen months treating American Tire as precedent when it never actually became precedent.
Judge Goldblatt’s comments at the interim DIP hearing certainly got everyone’s attention, but they were comments made during a hearing, not a merits ruling. By the end of that same hearing, once the mechanics of the transaction were more fully developed, the discussion had already evolved.
The dispute ultimately resolved through negotiation of the final DIP order rather than through a judicial determination of whether the structure violated a sharing provision.
Del Monte feels more significant because Judge Kaplan actually answered the question. His opinion did not create a new doctrine. Instead, he applied existing New York contract law to determine whether a cashless roll-up constituted a “payment” or “reduction” of debt under a standard pro rata sharing provision. His answer was no.
That has implications beyond DIP roll-ups. If a lender exchanges old debt for superpriority debt, enhanced collateral or a better position in the capital structure, courts may focus less on whether the outcome feels fair and more on whether the credit agreement was actually violated.
I also think Del Monte becomes more important because it is no longer theoretical. For the last several years, market participants have debated how courts might view uptiers, dropdowns, exchanges and roll-ups under standard sharing provisions. Judge Kaplan actually addressed the issue and issued a reasoned opinion that future courts and litigants will inevitably cite when similar disputes arise.
That is why I think Del Monte is bigger than just one DIP roll-up. The opinion gives market participants a published decision interpreting commonly used New York-law sharing provisions in the context of a modern liability management transaction. Future challengers will now have to distinguish Del Monte rather than argue in a vacuum.
The bigger lesson may be that pro rata sharing provisions were drafted for a different era. They were designed to prevent one lender from receiving a cash payment ahead of another lender. They were not drafted to govern the modern liability management toolbox of uptiers, dropdowns, exchanges and roll-ups. If lenders want sharing rights to extend to those types of transactions, they may need to negotiate for that protection explicitly going forward.
What I found most interesting about Del Monte is that the Majority and Minority lender groups began in the same position. What separated them was participation. The Majority participated in successive transactions and improved its position through enhanced priority, fees, equity and governance rights. The Minority did not. The participation opportunity was offered (multiple times) and that fact became central to the court’s analysis.
I also suspect the decision reinforces what many restructuring professionals already believed about venue selection. New Jersey was already emerging as a preferred forum for complex sponsor-backed restructurings and liability management transactions. Del Monte does not make New Jersey the exclusive venue for those cases, but it likely adds another data point for sponsors, lenders and advisors evaluating where they want to file when a liability management transaction or non-pro rata restructuring is likely to face scrutiny.
For me, the practical takeaway is less about venue and more about preparation. Credit investors can no longer assume that sharing provisions or post hoc litigation will undo a transaction after the fact. If a lender group has the ability to execute a liability management transaction, the more important question may be whether you have the infrastructure, advisors and authority to participate when the opportunity is presented.
I don’t think Del Monte changed the rules, but I think it clarified rules that the market may not have assumed. At least for now.
Copyright 2026 Creditor Rights Coalition
1 Section 2.1(b) of the DIP Credit Agreement, however, provides that the roll-up “shall satisfy and discharge” $150 million of the pre-petition First Out in term loans.
2 There was a time when courts would not roll-up pre-petition secured loans into DIP loans made by the pre-petition lenders unless it could be shown that the pre-petition secured loan was sure to be oversecured such that the roll-up would not prejudice other creditors, and an existing pre-petition loan could not be primed unless it was clear that the loan being primed was sufficiently oversecured such that it could not be prejudiced by the priming. For some time, the judicial approach has been to approve roll-ups and priming like in Del Monte when it appears that no other financing is available and the debtor’s business will crater absent such financing, regardless of how egregious its terms.
3 At confirmation, I understand that the DIP Lender and/or the Debtors argued that only the admin agent under the credit agreement can assert the adequate protection claims.
4 Certain Members of the Ad Hoc Grp. of Minority Secured Lenders v. Members of the Ad Hoc Term Lender Grp. (In re Del Monte Foods Corp. II, Inc.), No. 25-16984, Adv. No. 26-01018 (MBK), 2026 WL 1326956 (Bankr. D.N.J. May 11, 2026)
5 See Defendants’ Memorandum of Law in Support of Motion to Dismiss Plaintiffs’ Adversary Complaint, Certain Members of the Ad Hoc Grp. of Minority Secured Lenders v. Members of the Ad Hoc Term Lender Grp. (In re Del Monte Foods Corp. II, Inc.), Adv. No. 26-01018 (MBK), Bankr. No. 25-16984 (MBK), ECF No. 5-1 (Bankr. D.N.J. Feb. 25, 2026).
6 See Michael R. Handler, You’ve Got to Fight! For a Contractual DIP Financing Participation Right, The Review of Banking & Financial Services (April 2025). The article can be accessed here.
7 In re Capmark Financial Group, Inc.438 B.R. 471, 511 (Bankr. D. Del. 2010) (“Most simply, a roll-up is the payment of a pre-petition debt with the proceeds of a post-petition loan. . . [i]n both a refinancing and a roll-up, the prepetition secured claim is paid through the issuance of new debt rather than from unencumbered cash.”)
8 In re Speedcast Int’l Ltd., No. 20-32243-H1-11, Hr’g Tr. 107:4–21, 111:1–3, 112:3–11 (Bankr. S.D. Tex. May 20, 2020) (Isgur, J.).