A seemingly technical clash between a bankrupt mattress seller and Apollo Global Management Inc. over debt repayments escalated into accusations of fraud and perjury, after contentious testimony from a private equity executive.
(Bloomberg) — A seemingly technical clash between a bankrupt mattress seller and Apollo Global Management Inc. over debt repayments escalated into accusations of fraud and perjury, after contentious testimony from a private equity executive.
Serta Simmons Bedding LLC’s bid to win court approval for its restructuring plan has been bogged down by a fight with lenders, including Apollo, who claim a now-infamous refinancing deal in 2020 unfairly pushed some creditors down the repayment line. But on Monday, a managing director at Advent International — Serta’s private equity owner — said in court that Apollo should have never been allowed to own Serta debt in the first place, and that at least one executive at the investment giant was aware of that.
During the hearing, Advent’s Ken Prince said Apollo Partner Jim Vanek told him in 2020 that Apollo was contractually barred from buying Serta debt, but did so anyway. The allegation contradicts Apollo’s historic position on the matter — and could mean its bitter feud with the mattress maker wasted significant time and money, to the detriment of Serta’s creditors, according to US Bankruptcy Judge David R. Jones.
“I’ve now got a situation where I’ve either got perjury or a problem,” Jones said during the hearing. “Talk to Mr. Vanek. Please let him know the peril in which he finds himself at this point. But if he believes Mr. Prince is outright lying to me at this point, I am perfectly happy to hear his sworn testimony, in person, this week.”
Apollo and Advent declined to comment. Prince and Vanek didn’t immediately respond to requests for comment.
While heated cross-examinations are a routine part of contested bankruptcy proceedings, it’s exceedingly rare for the judge overseeing a case to openly float the idea that perjury or fraud has been committed. Jones’s concern is serious enough that he demanded Vanek, who is based in London, fly to Houston as soon as possible to testify.
Disqualified List
At the heart of the issue is whether Apollo was on Serta’s so-called disqualified list, a convention in leveraged finance that allows loan issuers to block certain parties from buying their debt. The mattress seller has long contended that Apollo snuck around the disqualified list to buy its debt; Apollo has denied that, and said it made sure to confirm it was on no such list before getting involved.
But the greater tension between Apollo and Serta stems from a financing deal the mattress maker put together to save itself from going bankrupt even earlier. The 2020 fundraise involved borrowing additional money from one segment of lenders while pushing others back in the repayment line, which sent prices for their debt holdings plummeting.
The alleged admission is a problem because Apollo’s fight with Serta has eaten up considerable time and money during the company’s restructuring process. If Apollo was never supposed to hold the debt, “I have wasted a lot of people’s time and a lot of estate money,” based on a claim that should not have been pursued, the judge added during the hearing.
Much of Jones’s scorn about the current state of play came after Prince said Vanek told him Apollo knew it was on the disqualified list.
“I understand greed: I deal with greed every single day, I understand how to motivate greed, I understand how to read through greed,” Jones said. “This is on a different level at this point because I am being asked to make decisions based on testimony and conversations. That’s a fraud on the court issue.”
Jones said he would probably drop the issue if Apollo withdraws its claims against Serta. He also recommended Prince get a lawyer.
“This is the integrity of the entire process at play now,” Jones said.
The case is Serta Simmons Bedding LLC, 23-90020, US Bankruptcy Court for the Southern District of Texas (Houston).
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