Del Monte Bankruptcy Court Addresses Whether DIP Roll-Ups Trigger Ratable Sharing Rights Under Prepetition Credit Agreement

I. What You Need to Know

On May 11, 2026, the United States Bankruptcy Court for the District of New Jersey issued a memorandum decision holding that a “roll-up” of prepetition debt as part of a DIP facility does not, standing alone, constitute a “payment or reduction” of that prepetition debt triggering a pro rata sharing provision under the prepetition credit agreement.¹ At the same time, the Court allowed the plaintiffs’ declaratory judgment claim to proceed, leaving open whether future payments on the roll-up loans may trigger ratable sharing obligations. This decision comes after a wave of increased enforcement of pro rata sharing provisions² and should prompt practitioners and clients alike to consider whether the language of their loan documents reflects their expectations regarding how “rolled-up” loans will be treated, especially as New Jersey becomes an increasingly popular venue for bankruptcy filings.³

II. Factual and Procedural Background

The current dispute arises from Del Monte’s 2024 liability-management transaction and subsequent chapter 11 financing. In August 2024, Del Monte entered into a three-tranche loan agreement with various lenders. As is common with many modern loan agreements, the prepetition loan agreement included provisions aimed at avoiding contractual and structural subordination of certain groups of lenders, including a so-called “sharing provision.” Under this provision, any lenders in the first tranche (the “First Out Lenders”) who receive a disproportionate “payment or reduction” on their debt must share that recovery through purchases of participations from other First Out Lenders so that recoveries would be shared proportionately (the “Sharing Provision”). The concept is straightforward: requiring lenders who receive favorable treatment to share benefits with other lenders discourages and neutralizes preferential distributions.

On July 1, 2025, Del Monte Foods Corporation II Inc. and certain affiliated entities (the “Debtors”) filed for chapter 11 bankruptcy in the District of New Jersey before Judge Michael B. Kaplan. The Debtors entered into a DIP facility with certain First Out Lenders (the “Defendants”) that provided $165 million in new money and “rolled up” $247.5 million owed to the Defendants under the prepetition loan. A roll-up of prepetition debt is a common practice in bankruptcy financing: a creditor provides additional postpetition credit (i.e., DIP financing) with super-priority status and some or all prepetition amounts owed to that creditor are “rolled up” into loans having the same super-priority, elevating the priority of the roll-up loans above the claims of other creditors, including any other obligations remaining under any prepetition credit facility. Critically, here, all First Out Lenders were given the opportunity to participate in the DIP facility, and thus have their loans rolled up. 

Certain First Out Lenders (the “Plaintiffs”) declined to participate in the DIP financing and retained their prepetition position. The Plaintiffs later commenced an adversary proceeding challenging the roll-up and seeking: (a) a ruling that the roll-up constituted a “payment or reduction” of the prepetition amounts, and therefore, the Defendants breached the Sharing Provision by failing to share that “payment or reduction” ratably, (b) a ruling that the roll-up breached the implied covenant of good faith and fair dealing inherent in every contract, and (c) a declaratory judgment that any amounts paid in the future on account of the rolled-up loans must be ratably shared with other First Out Lenders.⁴ The Defendants moved to dismiss all claims.⁵

III. The Court’s Ruling

Judge Kaplan first addressed the breach of contract claim, holding that rolling up the debt did not constitute a “payment or reduction.” The Court reasoned that “[i]n simple terms, Defendants agreed to loan $165,000,000 in new money, but only if they could recover $247,000,000 before anyone else were to receive payment on prepetition indebtedness.”⁶ This exchange—as the Court repeatedly noted—was entirely cashless and did not dissolve or discharge any debt. 

In addition, the Court noted that requiring the Defendants to purchase participations based on the mere entry of a roll-up transaction implicates practical problems: (1) it assumes that the DIP loans will be repaid in full, which is often not the case, and (2) it would entitle the Plaintiffs to the benefit of the increased priority that is afforded to DIP lenders on the basis of the associated risk, without requiring the Plaintiffs to undertake any such risk.

Finally, Judge Kaplan also invoked the golden rule of private contract: “had the Plaintiffs intended the agreement to prohibit a roll-up arrangement or to treat it as payment of the pre-petition debt, the parties could have stated so expressly.”⁷

The Court also dismissed the implied covenant claim without prejudice. It held that the implied covenant theory was based on the same conduct and sought the same damages as the dismissed contract claim, making it impermissibly duplicative under New York law. 

The Court turned next to the Plaintiffs’ efforts to obtain a declaratory judgment that, in the event that payments are made in respect of the rolled-up loans, those future payments must be ratably shared under the Sharing Provision. Reasoning that the obligations in respect of the prepetition loans could plausibly be understood to be merged into the rolled-up loans, and therefore, any subsequent payments of the rolled-up loans are payments of the prepetition loans, the Court held that Plaintiffs had adequately pled a claim. The Court thus distinguished between the entry of the DIP financing (and deemed issuance of the roll-up loans) itself and future payments or reductions received on account of roll-up loans.

However, the Court added an additional, and unusual, caveat. The Court stated that any sharing of the distributions under the rolled-up loans “requires a determination of the economic value attributable to the roll-up feature of the DIP Loans, including any other consideration associated with the additional risk and cost of new money . . . and [a determination of] whether (as well as to what extent if any) such value should be shared with lenders who did not participate in the roll-up transaction.”⁸ In short, before sharing any payments under the rolled-up loans, the Court will have to determine the amount of those payments that should be exempted from sharing to compensate the Defendants for the risk associated with entering into the DIP facility.

This ruling drives a wedge between the Bankruptcy Court for the District of New Jersey and its Third-Circuit-counterpart in Delaware. In a 2024 case—In re American Tire Distributors, Inc.⁹—Delaware Bankruptcy Judge Craig T. Goldblatt faced a similar set of facts to those before Judge Kaplan. While the Delaware Bankruptcy Court did not ultimately issue an opinion addressing the merits of the roll-up issue, in a statement on the record, Judge Goldblatt signaled his belief that “what the rollup is, is a draw on the DIP to pay down the prepetition credit agreement.”¹⁰ Specifically, Judge Goldblatt stated that, to the extent there’s any ambiguity, the reading of the provision should be informed by commercial rationality, and “it would be preposterous to enter into an agreement that provided for an exception to pro rata sharing in this context” and that he doesn’t “see how anyone in their right mind would enter into such an agreement; it makes zero commercial sense.”¹¹

Judge Kaplan addressed American Tire in his decision, but distinguished it by emphasizing that American Tire dealt with circumstances where not all lenders party to the pro rata sharing provision were offered the opportunity to participate in the DIP, and noting that Judge Goldblatt saved the roll-up issue for another day. Assuming the logic of American Tire and Del Monte can be squared, it would seem that the critical difference must be in the opportunity to participate.

IV. Key Takeaways

• The decision underscores the importance of express drafting in credit agreements and intercreditor arrangements. Practitioners should ensure that the treatment of any rolled-up loan is expressly addressed, particularly in sharing provisions. The easiest way to avoid the uncertainties that accompany decisions like Del Monte and American Tire is to be clear about the treatment of roll-up in the loan documents themselves.
• Based on Judge Kaplan’s decision, providing all similarly situated prepetition lenders with the opportunity to participate in the DIP facility may improve the likelihood that a court will permit roll-up of prepetition debt without any immediate obligations to the non-participating prepetition lenders despite a pro rata sharing provision. The Court distinguished Del Monte from the Plaintiffs’ characterization of American Tire in part because the minority lenders in Del Monte were offered the right to participate in the roll-up loans on equal terms with other similarly situated creditors.
• The decision does not eliminate litigation risk around roll-ups. By allowing the declaratory judgment claim to proceed, the court preserved the question whether later payments on rolled-up debt may have to be shared with nonparticipating lenders, and it remains unclear how payments will be shared in practice. Judge Kaplan’s decision suggests the necessity for an evidentiary inquiry into the economic value of the risk of entering the DIP facility, which will be used to reduce the amount ratably shared with the non-participating lenders, but the details of this calculation remain unspecified.
• Given the early stage at which DIP financing tends to enter the picture in a bankruptcy case, this opinion may give friendly creditors and debtors who seek to enter into a roll-up transaction through a DIP facility reason to file in New Jersey. Indeed, Judge Kaplan’s recent ruling in In re Multi-Color Corp.¹² that venue is governed by an asset-based approach makes this sort of forum-shopping easier to achieve.
• For minority lenders, the decision narrows immediate breach claims based solely on entry of a roll-up, but it leaves room to challenge the treatment of future proceeds and to seek a declaration regarding post-approval payments. Minority lenders should focus early on whether the governing documents expressly address roll-ups.

¹ Memorandum Decision, In re Del Monte Foods Corp. II, Inc., Case No. 25-16984 (Bankr. D.N.J. May 11, 2026), Adv. Case No. 26-01018, Dkt. No. 31 (the “Memorandum Decision”).
² See generally In re Serta Simmons Bedding, L.L.C., 125 F.4th 555 (5th Cir. Dec. 31, 2024); In re ConvergeOne Holdings, Inc., Case No. 24-90194, 2025 WL 4700341 (S.D. Tex. Sept. 25, 2025); In re Am. Tire Distribs., Inc., Case No. 24-12391 (CTG) (Bankr. D. Del. Nov. 19, 2024).
³ Amelia Pollard & Jonathan Randles, New Jersey Is the New Hot Spot for Big Businesses to Go Broke, BLOOMBERG L. (May 2, 2023); Theisen, Mario, Malone & Crapo, USA – New Jersey, CHAMBERS & PARTNERS (Nov. 13, 2025).
⁴ Complaint by Certain Members of the Ad Hoc Group of Minority Secured Lenders Against Members of the Ad Hoc Term Lender Group, In re Del Monte Foods Corp. II, Inc., Case No. 25-16984 (Bankr. D.N.J. Jan. 23, 2026), Adv. Case No. 26-01018, Dkt. No. 1.
⁵ Motion to Dismiss Adversary Proceeding, In re Del Monte Foods Corp. II, Inc., Case No. 25-16984 (Bankr. D.N.J. Feb. 25, 2026), Adv. Case No. 26-01018, Dkt. No. 5.
⁶ Memorandum Decision at 10.
⁷ Id. at 13.
⁸ Id. at 19.
⁹ Case No. 24-12391 (CTG) (Bankr. D. Del. Nov. 19, 2024) (ruling on the record) (hearing transcript attached as Exhibit 4 to the Plaintiffs Brief in Opposition to Motion to Dismiss, In re Del Monte Foods Corp. II, Inc., Case No. 25-16984 (Bankr. D.N.J. Mar. 11, 2026), Adv. Case No. 26-01018, Dkt. No. 12).
¹⁰ Tr. Nov. 19, 2024 Hr’g at 116:2–4, In re Am. Tire Distribs., Inc., Case No. 24-12391 (CTG) (Bankr. D. Del. Nov. 19, 2024).
¹¹ Id. at 116:20, 116:9–18.
¹² Letter Opinion, In re Multi-Color Corp., No. 26-10910 (Bankr. D.N.J. March 16, 2026), Dkt. No. 458. In this case, Judge Kaplan ruled that the placement of approximately $1,050,000 in New Jersey bank accounts 16 days prior to filing was sufficient to establish venue in New Jersey, even when “no party can deny that the [accounts] were opened so that the [debtors] could file in [New Jersey].” Id. at 2, 28.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Jennifer Taylor, an O’Melveny partner licensed to practice law in California; Matthew P. Kremer, an O’Melveny partner licensed to practice law in New York; and Gavin R. Barrett, an O’Melveny associate licensed to practice law in New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

© 2026 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, 1301 Avenue of the Americas, Suite 1700, New York, NY, 10019, T: +1 212 326 2000.