Del Monte Pacific Ltd. (DMPL) reported that its debt burden has increased by $20 million as it took out a loan to settle a dispute with creditors of its US subsidiaries over allegations of default in 2022.

In a disclosure to the Philippine Stock Exchange, the firm said this is due to a suit filed by a group of lenders under the term loan agreement of Del Monte Foods Inc. (DMFI) dated May 16, 2022, or the 2022 DMFI facility agreement. This group did not participate in the new term facility agreement.

The lenders sued DMFI, two other Del Monte Foods Holdings Ltd. (DMFHL) subsidiaries, and certain named directors in the state of Delaware court of chancery. DMFHL is DMFI’s intermediate parent company.

The complaint alleged that certain defaults and events of default had occurred under the 2022 DMFI facility agreement, and that as a result of such defaults and events of default, the lenders were entitled to remove the current directors of DMFI and two other DMFHL subsidiaries, and replace those directors with their own appointees.

The defendants denied that any defaults or events of default had occurred under the 2022 DMFI facility agreement, and vigorously contested the lenders’ allegations and purported exercise of remedies.

Trial in the action was held in mid-February 2025, and a post-trial hearing was scheduled for April 9, 2025.

In advance of the post-trial hearing, DMPL and certain lenders of a DMFHL subsidiary negotiated a settlement of the action with plaintiffs. The lawsuit has now been dismissed with finality.

In connection with the settlement, all indebtedness under the 2022 DMFI facility agreement would be retired.

The settlement was funded through an incremental first-out loan from certain new term facility lenders (settlement loan) to a DMFHL subsidiary.

The settlement loan increases Del Monte Pacific Group’s interest expense by about $4 million annually and increases the group’s debts by $20 million.

DMPL agreed to contribute either by equity or a subordinated loan to the subsidiary by May 5, 2025.

In case the company decides not to provide any monetary contribution, a majority of directors on the boards of DMFHL and each of its subsidiaries would be appointed by the lenders, certain governance changes would be put in place, and a portion of the company’s equity in DMFHL would be applied to partially pay the settlement loan.